Discussion: Respondent Superior

7(200-300words)

https://oregonstate.instructure.com/courses/1705112/files/73100322/preview?verifier=4ps7ZqmCrS50Otuk85upCnM1QVkRDuQ3quLQxgvM

Agency law covers a wide array of circumstances where one party agrees to (contemporaneously or in the future) or by operation of law act(s) on behalf of another party. The legal field is a prime example of such a relationship: every client (principal) who hired me to represent them in a court of law, draft a contract, negotiate a settlement, etc. established an agency relationship with me; realtors and home buyers/sellers create agency relationships, head hunters conducting interviews on behalf of a business-employer are agents, as well. Another significant example of the application of agency law is the employer-employee relationship. Of particular interest in this relationship is the liability of the employer to 3rd parties for the acts or omissions of the employee. The law establishes that an employer (principal) may be liable if the employee (agency) inflicts harm to a 3rd party under the doctrine of respondent superior. The operative word is “may”. The court must determine – if they are (or are not) to hold an employer liable – whether the employee acted within the scope of his/her of employment. There are a number of factors the court uses to assist it in this endeavor (see pg. 431 of the text). Part and parcel to this evaluation is whether the employee was on a detour or a frolic.

For this discussion we will use Business Scenario 19-2 found at the end of Chapter 19 of the text. I have used this fact pattern in on campus courses settings wherein a lively debate occurs as to whether Arnez was within the scope of employment or not/whether he was on a detour or frolic. Determining how one applies the various factors to the facts determines the liability of the employer, ABC Tire Corp.

Therefore, you are the judge once again. Thomas is in your courtroom having sued ABC Tire Corp. What is your conclusion – is ABC Tire Corp. liable for the injury Arnez caused to Thomas? Apply your legal reasoning in the IRAC format. Compare/contrast with “Case in Point 19.22” and “19.23” in the text.

Rule: what rule(s) do you apply?

Application/Conclusion: legally analyze the rule(s) to the facts to reach your conclusion.

Regardless of your conclusion as to whether you determine ABC Tire Corp. is liable to Thomas or not, ABC Tire Corp. was put into a difficult position given Arnez’ actions. As the employer what could you do to reduce your exposure to liability for an employee’s actions or omission?

Article Analysis Assignments

(200-300 words)

you will select an article from a business periodical which generally relates to this course and write a brief summary and analysis. When choosing articles for this weekly assignment, you should ask yourself “Would this article be interesting to a student in this course or to someone who is working as a business professional?” This is an individual project. Two points are deducted each day assignment is late.

Each article analysis assignment shall include four parts:

i. Title of the article, date of publication, and author (note: The Economist does not provide author’s names on articles) of the article that you selected;

ii. A paragraph(s) summarizing the content and context of the selected article;

iii. A paragraph (or more) of your reflections where you clearly and succinctly analyze the article, reflecting on its meaning as it relates to your coursework in this class and/or its usefulness for business professionals seeking to become legally-astute managers, entrepreneurs, government regulators, etc. This analysis paragraph should include at least two references to the readings, resources, and/or discussions which are covered in the course; and,

iv. A link (URL) to the article

Recommended sources for your article:

· The Wall Street Journal (Links to an external site.)链接到外部网站。

· The Economist (Links to an external site.)链接到外部网站。

· Harvard Business Review (Links to an external site.)链接到外部网站。

· The Financial Times (Links to an external site.)链接到外部网站。

· National Public Radio U.S. News (Links to an external site.)链接到外部网站。

· The New York Times (Links to an external site.)链接到外部网站。

· The Washington Post (Links to an external site.)链接到外部网站。

· The Guardian U.S. News (Links to an external site.)链接到外部网站。

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ETHICS TODAY

Stare Decisis versus Spider-Man Chapter 1, p. 9

Is It Ethical (and Legal) to Brew “Imported” Beer Brands Domestically? Chapter 11, p. 217

Forced Arbitration: Right or Wrong? Chaper 13, p. 267

Should There Be More Relief for Student Loan Defaults? Chapter 15, p. 337

Is It Fair to Classify Uber and Lyft Drivers as Independent Contractors? Chapter 19, p. 418

Is It Fair to Dock Employees’ Pay for Bathroom Breaks? Chapter 20, p. 442

Should Eminent Domain Be Used to Promote Private Development? Chapter 26, p. 562

MANAGERIAL STRATEGY

Should You Consent to Have Your Business Case Decided by a U.S. Magistrate Judge? Chapter 2, p. 38

Marriage Equality and the Constitution Chapter 4, p. 72

When Is a Warning Legally Bulletproof? Chapter 7, p. 142

The Criminalization of American Business Chapter 10, p. 191

Creating Liability Waivers That Are Not Unconscionable Chapter 12, p. 257

Commercial Use of Drones Chapter 14, p. 295

Can a Person Who Is Not a Member of a Protected Class Sue for Discrimination? Chapter 17, p. 376

Union Organizing Using a Company’s E-Mail System Chapter 22, p. 483

The SEC’s New Pay-Ratio Disclosure Rule Chapter 28, p. 590

Frank B. Cross Herbert D. Kelleher

Centennial Professor in Business Law University of Texas at Austin

Roger LeRoy Miller Institute for University Studies

Arlington, Texas

The L EG A L

EN V IRONMENT of BBUSINESS

T E X T A N D C A SE S

Tenth Edition

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The Legal Environment of Business TEXT AND CASES

Tenth Edition

Frank B. Cross Roger LeRoy Miller

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Unit One THE FOUNDATIONS 1 Chapter 1 Law and Legal Reasoning 2 Chapter 2 Courts and Alternative Dispute Resolution 26 Chapter 3 Court Procedures 48 Chapter 4 Business and the Constitution 70 Chapter 5 Business Ethics 89

Unit Two THE PUBLIC AND INTERNATIONAL ENVIRONMENT 111 Chapter 6 Tort Law 112 Chapter 7 Strict Liability and Product Liability 134 Chapter 8 Intellectual Property Rights 150 Chapter 9 Internet Law, Social Media, and Privacy 170 Chapter 10 Criminal Law and Cyber Crime 187 Chapter 11 International and Space Law 211

Unit Three THE COMMERCIAL ENVIRONMENT 233 Chapter 12 Formation of Traditional and E-Contracts 234 Chapter 13 Contract Performance, Breach, and Remedies 262 Chapter 14 Sales and Lease Contracts 284 Chapter 15 Creditor-Debtor Relations and Bankruptcy 318

Unit Four THE BUSINESS AND EMPLOYMENT ENVIRONMENT 349 Chapter 16 Small Businesses and Franchises 350 Chapter 17 Limited Liability Business Forms 371 Chapter 18 Corporations 388 Chapter 19 Agency Relationships 416 Chapter 20 Employment Law 438 Chapter 21 Employment Discrimination 453 Chapter 22 Immigration and Labor Law 474

Unit Five THE REGULATORY ENVIRONMENT 495 Chapter 23 Administrative Agencies 496 Chapter 24 Consumer Protection 515 Chapter 25 Environmental Law 532 Chapter 26 Real Property and Land-Use Control 548 Chapter 27 Antitrust Law 568 Chapter 28 Investor Protection and Corporate Governance 588

Brief Contents

iv BRIEF CONTENTS

APPENDICES A How to Brief Cases and Analyze Case Problems A-1 B �e Constitution of the United States A-5 C Articles 2 and 2A of the A of the A Uniform Commercial Code A-13 D Answers to the Issue Spotters A-51 E Sample Answers for Business Case Problems with Sample Answer A-57

GLOSSARY G-1 TABLE OF CASES TC-1 INDEX I-1

Unit One THE FOUNDATIONS 1

Chapter 1 Law and Legal Reasoning 2 Business Activities and the Legal Environment 2 Sources of American Law 3 �e Common Law Tradition 6 Schools of Legal �ought 12 Classi�cations of Law 13 How to Find Primary Sources of Law 14 How to Read and Understand Case Law 19

Chapter 2 Courts and Alternative Dispute Resolution 26 �e Judiciary’s Role in American Government 26 Basic Judicial Requirements 27 Case Analysis 2.1 Mala v. Crown Bay Marina, Inc. (2013) 29 Spotlight on Gucci

Case 2.2 Gucci America, Inc. v. Wang Huoqing (2011) 32 �e State and Federal Court Systems 35 Case 2.3 Johnson v. Oxy USA, Inc. (2016) 36 Alternative Dispute Resolution 40 International Dispute Resolution 44

Chapter 3 Court Procedures 48 Procedural Rules 48 Pretrial Procedures 50 Case Analysis 3.1 Espresso Disposition Corp. 1 v. Santana Sales

& Marketing Group, Inc. (2013) 54 Case 3.2 Lewis v. Twenty-First Century Bean

Processing (2016) 56 Case 3.3 Brothers v. Winstead (2014) 58 �e Trial 61 Posttrial Motions 64 �e Appeal 65 Enforcing the Judgment 66

Chapter 4 Business and the Constitution 70 �e Constitutional Powers of Government 70 Classic Case 4.1 Heart of Atlanta Motel v. United

States (1964) 73 Business and the Bill of Rights 75 Spotlight on Beer Labels

Case 4.2 Bad Frog Brewery, Inc. v. New York State Liquor Authority (1998) 78

Case Analysis 4.3 Thompson v. Holm (2016) 81 Due Process and Equal Protection 83 Privacy Rights 84

Chapter 5 Business Ethics 89 Business Ethics 89 Case 5.1 Scott v. Carpanzano (2014) 91 Business Ethics and Social Media 93 Ethical Principles and Philosophies 94 Making Ethical Business Decisions 97 Case 5.2 Al-Dabagh v. Case Western Reserve

University (2015) 99 Case Analysis 5.3 Moseley v. Pepco Energy Services,

Inc. (2011) 100 Global Business Ethics 102 Unit One Application and Ethics:

“Arbitration, No Class Actions” 107

Unit Two THE PUBLIC AND INTERNATIONAL ENVIRONMENT 111

Chapter 6 Tort Law 112 �e Basis of Tort Law 112 Intentional Torts against Persons 113 Case Analysis 6.1 Blake v. Giustibelli (2016) 115 Case 6.2 Revell v. Guido (2015) 120 Intentional Torts against Property 123 Unintentional Torts—Negligence 125 Defenses to Negligence 129 Spotlight on the Seattle Mariners

Case 6.3 Taylor v. Baseball Club of Seattle, LP (2006) 129

Contents

vi CONTENTS

Chapter 7 Strict Liability and Product Liability 134 Strict Liability 134 Product Liability 135 Case Analysis 7.1 Schwarck v. Arctic Cat, Inc. (2016) 136 Strict Product Liability 137 Spotlight on Injuries from Vaccines

Case 7.2 Bruesewitz v. Wyeth, LLC (2011) 138 Defenses to Product Liability 144 Case 7.3 VeRost v. Mitsubishi Caterpillar Forklift America,

Inc. (2015) 144

Chapter 8 Intellectual Property Rights 150 Trademarks and Related Property 150 Classic Case 8.1 The Coca-Cola Co. v. The Koke Co.

of America (1920) 150 Case 8.2 LFP IP, LLC v. Hustler Cincinnati, Inc. (2016) 153 Patents 157 Copyrights 160 Case Analysis 8.3 Winstead v. Jackson (2013) 161 Trade Secrets 164 International Protection for Intellectual Property 166

Chapter 9 Internet Law, Social Media, and Privacy 170 Internet Law 170 Spotlight on Internet Porn

Case 9.1 Hasbro, Inc. v. Internet Entertainment Group, Ltd. (1996) 173

Copyrights in Digital Information 174 Social Media 176 Online Defamation 178 Other Actions Involving Online Posts 180 Case Analysis 9.2 David v. Textor (2016) 181 Privacy 182 Case 9.3 Nucci v. Target Corp. (2015) 182

Chapter 10 Criminal Law and Cyber Crime 187 Civil Law and Criminal Law 187 Criminal Liability 189 Types of Crimes 192 Case 10.1 State of Minnesota v. Smith (2015) 193 Spotlight on White-Collar Crime

Case 10.2 People v. Sisuphan (2010) 195 Defenses to Criminal Liability 198 Criminal Procedures 201 Cyber Crime 204 Case Analysis 10.3 United States v. Warner (2016) 205

Chapter 11 International and Space Law 211 International Law 211 Case Analysis 11.1 Bennett v. Islamic Republic of Iran

(2016) 215 Doing Business Internationally 216 Regulation of Speci�c Business Activities 219 International Dispute Resolution 221 Case 11.2 Carlyle Investment Management, LLC v. Moonmouth

Co. SA (2015) 222 U.S. Laws in a Global Context 223 Spotlight on International Torts

Case 11.3 Daimler AG v. Bauman (2014) 223 Space Law 225 Unit Two Application and Ethics:

The Biggest Data Breach of All Time 230

Unit Three THE COMMERCIAL ENVIRONMENT 233

Chapter 12 Formation of Traditional and E-Contracts 234 An Overview of Contract Law 234 Agreement 238 Classic Case 12.1 Lucy v. Zehmer (1954) 238 Case Analysis 12.2 Hinkal v. Pardoe (2016) 243 E-Contracts 245 Consideration 248 Spotlight on Nike

Case 12.3 Already, LLC v. Nike, Inc. (2013) 251 Contractual Capacity 253 Legality 254 Form 256 �ird Party Rights 256

Chapter 13 Contract Performance, Breach, and Remedies 262 Voluntary ConsentVoluntary ConsentV 262 Case 13.1 Schneiderman v. Trump Entrepreneur Initiative, LLC

(2016) 264 Performance and Discharge 267 Case Analysis 13.2 Kohel v. Bergen Auto Enterprises, L.L.C.

(2013) 270 Damages 274

CONTENTS vii

Spotlight on Liquidated Damages Case 13.3 Kent State University v. Ford (2015) 277

Equitable Remedies 278 Waiver of Breach 280 Contract Provisions Limiting Remedies 281

Chapter 14 Sales and Lease Contracts 284 �e Scope of Articles 2 (Sales) and 2A (A (A Leases) 284 �e Formation of Sales and Lease Contracts 286 Classic Case 14.1 Jones v. Star Credit Corp. (1969) 291 Title, Risk, and Insurable Interest 292 Case Analysis 14.2 BMW Group, LLC v. Castle Oil Corp.

(2016) 293 Performance and Breach of Sales and Lease Contracts 298 Remedies for Breach of Sales and Lease Contracts 302 Spotlight on Baseball Cards

Case 14.3 Fitl v. Strek (2005) 306 Warranties 307 Contracts for the International Sale of Goods 309

Chapter 15 Creditor-Debtor Relations and Bankruptcy 318 Laws Assisting Creditors 318 Case Analysis 15.1 Picerne Construction Corp. v. Villas

(2016) 319 Mortgages 324 Protection for Debtors 325 Bankruptcy Law 326 Liquidation Proceedings 326 Case 15.2 In re Anderson (2016) 332 Case 15.3 In re Cummings (2015) 336 Reorganizations 338 Bankruptcy Relief under Chapter 12 and Chapter 13 339 Unit Three Application and Ethics:

Fantasy Sports—Legal Gambling? 346

Unit Four THE BUSINESS AND EMPLOYMENT ENVIRONMENT 349

Chapter 16 Small Businesses and Franchises 350 General Considerations for Small Businesses 350 Sole Proprietorships 351

Case Analysis 16.1 A. Gadley Enterprises, Inc. v. Department of Labor and Industry Office of Unemployment Compensation Tax Services (2016) 352

Partnerships 355 Classic Case 16.2 Meinhard v. Salmon (1928) 358 Franchises 362 Spotlight on Holiday Inns

Case 16.3 Holiday Inn Franchising, Inc. v. Hotel Associates, Inc. (2011) 367

Chapter 17 Limited Liability Business Forms 371 �e Limited Liability Company 371 Case 17.1 Hodge v. Strong Built International, LLC (2015) 373 LLC Management and Operation 375 Dissociation and Dissolution of an LLC 377 Case Analysis 17.2 Reese v. Newman (2016) 378 Limited Liability Partnerships 379 Limited Partnerships 381 Case 17.3 DeWine v. Valley View Enterprises, Inc. (2015) 381

Chapter 18 Corporations 388 Nature and Classi�cation 388 Case 18.1 Drake Manufacturing Co. v. Polyflow, Inc.

(2015) 390 Case Analysis 18.2 Pantano v. Newark Museum (2016) 391 Formation and Powers 394 Piercing the Corporate VeilVeilV 399 Directors and O�cers 400 Classic Case 18.3 Guth v. Loft, Inc. (1939) 404 Shareholders 405 Major Business Forms Compared 411

Chapter 19 Agency Relationships 416 Agency Law 416 Formation of the Agency Relationship 419 Duties of Agents and Principals 420 Spotlight on Taser International

Case 19.1 Taser International, Inc. v. Ward (2010) 422 Case Analysis 19.2 NRT New England, LLC v. Jones (2016) 425 Agent’s Authority 426 Liability in Agency Relationships 428 Case 19.3 Asphalt & Concrete Services, Inc. v. Perry (2015) 431 Termination of an Agency 433

viii CONTENTS

Chapter 20 Employment Law 438 Employment at Will 438 Case Analysis 20.1 Caterpillar, Inc. v. Sudlow (2016) 439 Wages, Hours, and Layo�s 441 Case 20.2 Bailey v. TitleMax of Georgia, Inc. (2015) 443 Family and Medical Leave 444 Case 20.3 Ballard v. Chicago Park District (2014) 445 Health, Safety, and Income Security 446 Employee Privacy Rights 449

Chapter 21 Employment Discrimination 453 Title VII of the Civil Rights Act 453 Case Analysis 21.1 Bauer v. Lynch (2016) 458 Case 21.2 Young v. United Parcel Service, Inc. (2015) 459 Case 21.3 Roberts v. Mike’s Trucking, Ltd. (2014) 462 Discrimination Based on Age 464 Discrimination Based on Disability 466 Discrimination Based on Military Status 469 Defenses to Employment Discrimination 469 A�rmative Action 470

Chapter 22 Immigration and Labor Law 474 Immigration Law 474 Federal Labor Laws 477 Case 22.1 Services Employees International Union v.

National Union of Healthcare Workers (2013) 478 Union Organization 479 Case Analysis 22.2 Contemporary Cars, Inc. v. National Labor

Relations Board (2016) 481 Collective Bargaining 482 Strikes and Lockouts 483 Unfair Labor Practices 485 Case 22.3 Staffing Network Holdings, LLC v.

National Labor Relations Board (2016) 486 Unit Four Application and Ethics:

Health Insurance and Small Business 492

Unit Five THE REGULATORY ENVIRONMENT 495

Chapter 23 Administrative Agencies 496 �e Practical Signi�cance of Administrative Law 496 Agency Creation and Powers 497

Case 23.1 Loving v. Internal Revenue Service (2014) 500 �e Administrative Process 502 Case 23.2 Craker v. Drug Enforcement Administration

(2013) 506 Judicial Deference to Agency Decisions 507 Case Analysis 23.3 Olivares v. Transportation Security

Administration (2016) 508 Public Accountability 510

Chapter 24 Consumer Protection 515 Advertising, Marketing, and Sales 515 Case 24.1 POM Wonderful, LLC v. Federal Trade Commission

(2015) 516 Case 24.2 Lexmark International, Inc. v. Static Control

Components, Inc. (2014) 520 Labeling and Packaging Laws 522 Protection of Health and Safety 523 Credit Protection 524 Case Analysis 24.3 Santangelo v. Comcast Corporation

(2016) 526

Chapter 25 Environmental Law 532 Common Law Actions 532 Federal, State, and Local Regulations 533 Case Analysis 25.1 Friends of Animals v. Clay (2016) 533 Air Pollution 536 Case 25.2 United States v. O’Malley (2014) 538 Water Pollution 539 Case 25.3 Entergy Corp. v. Riverkeeper, Inc. (2009) 540 Toxic Chemicals and Hazardous Waste 543

Chapter 26 Real Property and Land-Use Control 548 �e Nature of Real Property 548 Ownership and Other Interests in Real Property 550 Case 26.1 Main Omni Realty Corp. v. Matus (2015) 551 Transfer of Ownership 555 Spotlight on Sales of Haunted Houses

Case 26.2 Stambovsky v. Ackley (1991) 556 Case Analysis 26.3 Montgomery County v. Bhatt (2016) 559 Limitations on the Rights of Property Owners 561 Land-Use Control and Zoning 563

Chapter 27 Antitrust Law 568 �e Sherman Antitrust Act 568 Section 1 of the Sherman Act 569 Section 2 of the Sherman Act 572

CONTENTS ix

Case Analysis 27.1 McWane, Inc. v. Federal Trade Commission (2015) 574

Spotlight on Weyerhaeuser Case 27.2 Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co. (2007) 576

�e Clayton Act 577 Enforcement and Exemptions 580 Case 27.3 TransWeb, LLC v. 3M Innovative Properties Co.

(2016) 580 U.S. Antitrust Laws in the Global Context 583

Chapter 28 Investor Protection and Corporate Governance 588 �e Securities Act of 1933 588 Case 28.1 Omnicare, Inc. v. Laborers District

Council Construction Industry Pension Fund (2015) 594 �e Securities Exchange Act of 1934 595 Classic Case 28.2 SEC v. Texas Gulf Sulphur Co. (1968) 596

Case Analysis 28.3 Rand-Heart of New York, Inc. v. Dolan (2016) 600

State Securities Laws 603 Corporate Governance 603 Unit Five Application and Ethics:

Climate Change 610

Appendices A How to Brief Cases and Analyze Case Problems A-1 B �e Constitution of the United States A-5 C Articles 2 and 2A of the A of the A Uniform Commercial Code A-13 D Answers to the Issue Spotters A-51 E Sample Answers for Business Case Problems with Sample

Answer A-57

Glossary G-1 Table of Cases TC-1 Index I-1

Concept Summaries

1.1 Sources of American Law 5 1.2 �e Common Law Tradition 11 1.3 Schools of Jurisprudential �ought 13 2.1 Jurisdiction 34 2.2 Types of Courts 4l 3.1 Pretrial Procedures 62 3.2 Trial Procedures 64 3.3 Posttrial Options 66 6.1 Intentional Torts against Persons 122

6.2 Intentional Torts against Property 126 7.1 Defenses to Product Liability 147

10.1 Types of Crimes 199 12.1 Types of Contracts 237 12.2 Methods byWhich

an O�er Can Be Terminated 242 14.1 O�er, Acceptance, and Consideration

under the UCC 289 15.1 Forms of Bankruptcy Relief Compared 342

xii

1–1 Areas of the Law That Can Affect Business Decision Making 3

1–2 Equitable Maxims 7 1–3 Procedural Differences between

Actions at Law and Actions in Equity 8 1–4 National Reporter Reporter R System—Regional/FederalRegional/FederalR 16 1–5 How to Read CitationsRead CitationsR 17 1–6 A Sample Court Case 21 2–1 Exclusive and Concurrent Jurisdiction 31 2–2 The State and Federal Court Systems 35 2–3 Geographic Boundaries of the

U.S. Courts of Appeals and Appeals and A U.S. District Courts 39 2–4 Basic Differences in the Traditional Forms of ADR 42 3–1 Stages in a Typical Lawsuit 49 3–2 A Typical Complaint A Typical Complaint A 51 3–3 A Typical A Typical A Summons 52 3–4 Pretrial Motions 54 4–1 Protections Guaranteed by the Bill of RightsRightsR 76 4–2 Federal Legislation Relating to PrivacyRelating to PrivacyR 85 8–1 Forms of Intellectual Property 165

10–1 Key Differences between Civil Law and Criminal Law 188

10–2 Civil (Tort) Lawsuit and Criminal Prosecution for the Same Act 189

10–3 Major Procedural Steps in a Criminal Case 203 11–1 The Legal Systems of Selected Nations 213 11–2 Examples of International Principles

and Doctrines 216 12–1 Examples of Agreements That Lack Consideration 250 13–1 Mistakes of Fact 263 13–2 Discharge by Performance 271 13–3 Remedies for Remedies for R Breach of Contract 280 14–1 The Law Governing Contracts 285 14–2 Major Differences between

Contract Law and Sales Law 292 15–1 Suretyship and Guaranty Parties 322

15–2 Collection and Distribution of Property in Most Voluntary Voluntary V Bankruptcies 334

16–1 The FTC’s Franchise Rule Rule R RequirementsRequirementsR 364 17–1 Management of an LLC 375 17–2 A Comparison of A Comparison of A General Partnerships

and Limited Partnerships 383 18–1 Results of Cumulative Results of Cumulative R VotingVotingV 408 18–2 Major Forms of Business Compared 411 19–1 Duties of the Agent 421 19–2 Duties of the Principal 423 19–3 Termination by Act of the Parties 433 21–1 Coverage of Employment Discrimination Laws 468 22–1 Good Faith versus Bad Faith

in Collective Bargaining 484 22–2 Basic Unfair Labor Practices 485 23–1 Executive Departments

and Important Subagencies 498 23–2 Selected Independent Regulatory Regulatory R Agencies 499 23–3 The Formal Administrative

Agency Adjudication Process 505 24–1 Selected Areas of Consumer Law

Regulated by Regulated by R Statutes 516 25–1 Major Federal Environmental Statutes 535 25–2 Environmental Impact Statements 536 25–3 Pollution-Control Equipment Standards under

the Clean Air Act and the Clean Water Act 540 26–1 Interests in Real PropertyReal PropertyR 555 27–1 Required Required R Elements of a Sherman Act ViolationViolationV 569 27–2 Exemptions to Antitrust Enforcement 582 28–1 Exemptions for Securities Offerings

under the 1933 Securities Act 592 28–2 Comparison of Coverage, Application, Application, A

and Liability under SEC Rule 10b-5 and Rule 10b-5 and R Section 16(b) 599

28–3 Some Key Provisions of the Sarbanes-Oxley Act Relating to Corporate Relating to Corporate R Accountability 606

Exhibits

xiii

The study of the legal environment of business has universal applicability. A student entering any field of A student entering any field of A business must have at least a passing understanding of business law in order to function in the real world. The Legal Environment of Business, Tenth Edition, provides the information that students need in an interesting and contemporary way.

Additionally, students preparing for a career in accounting, government and political science, econom- ics, and even medicine can use much of the information they learn in a legal environment course. In fact, every individual throughout his or her lifetime can bene�t from knowledge of environmental law, intellectual and real property, agency and employment relationships, and other legal environment topics. Consequently, we have fashioned this text as a useful “tool for living” for all of your students (including those taking the revised 2017 CPA2017 CPA2017 CP exam). A exam). A

For the Tenth Edition, we have spent a great deal of e�ort making this book more modern, exciting, and visu- ally appealing than ever before. We have added twenty- seven new features, �fty-two new cases, and seventeen new exhibits. �e text also contains more than one hundred new highlighted and numbered Cases in Point and Examples, and eighty-�ve new case problems. Spe- cial pedagogical elements within the text focus on legal, ethical, global, and corporate issues while addressing core curriculum requirements.

Highlights of the Tenth Edition Instructors have come to rely on the coverage, accuracy, and applicability of The Legal Environment of Business. To make sure that our text engages your students, solidifies their understanding of legal concepts, and provides the best teaching tools available, we now offer the following.

A Variety of New and Exciting Features The Tenth Edition of The Legal Environment of Business is filled with many new features specifically designed to cover current legal topics of high interest. Each feature is related to a topic discussed in the text and ends with Crit-Crit-Crit ical �inking or Business Questions. Suggested answers

to all the Critical �inking and Business Questions are included in the Solutions Manual for this text.

1. Ethics Today These features focus on the ethical aspects of a topic discussed in the text to empha- size that ethics is an integral part of a business law course. Examples include: • Stare Decisis versus Spiderman (Chapter 1) • Is It Ethical (and Legal) to Brew “Imported” Beer

Brands Domestically? (Chapter 11) • Forced Arbitration: Right or Wrong? (Chapter 13) • Should There Be More Relief for Student Loan

Defaults? (Chapter 15) • Is It Fair to Classify Uber and Lyft Drivers as Lyft Drivers as L

Independent Contractors? (Chapter 19) 2. Global Insight These features illustrate how other

nations deal with specific legal concepts to give stu- dents a sense of the global legal environment. Sub- jects include: • Does Cloud Computing Have a Nationality?

(Chapter 18) 3. NEW Digital Update These features are designed

to examine cutting-edge cyberlaw topics, such as the following: • Using Social Media for Service of Process

(Chapter 3) • Should Employees Have a “Right of Disconnect-

ing”? (Chapter 5) • Revenge Porn and Invasion of Privacy (Chapter 6) • Monitoring Employees’ Social Media—Right or

Wrong? (Chapter 9) • Hiring Discrimination Based on Social Media

Posts (Chapter 21) 4. Managerial Strategy These features emphasize the

management aspects of business law and the legal environment. Topics include: • Should You Consent to Have Your Business Case

Decided by a U.S. Magistrate Judge? (Chapter 2) • Marriage Equality and the Constitution (Chapter 4) • When Is a Warning Legally Bulletproof?

(Chapter 7) • The Criminalization of American Business

(Chapter 10) • Commercial Use of Drones (Chapter 14) • The SEC’s New CEO Pay-Ratio Disclosure

Rule (Chapter 28)

Preface

xiv PREFACE

Entire Chapter on Internet Law, Social Media, and Privacy For the Tenth Edition, we include a whole chapter (Chapter 9) on Internet Law, Social Media, and Privacy. Social media have entered the mainstream and become a part of everyday life for many businesspersons. In this special chapter, we give particular emphasis to the legal issues surrounding the Internet, social media, and pri- vacy. We also recognize this trend throughout the text by incorporating the Internet and social media as they relate to the topics under discussion.

Highlighted and Numbered Examples and Case in Point Illustrations Many instructors use cases and examples to illustrate how the law applies to business. Students understand legal concepts better in the context of their real-world applica- tion. Therefore, for this edition of The Legal Environment of Business, we have expanded the number of highlighted numbered Examples and Examples and Examples Cases in Point in every chap- ter. We have added 102 new Cases in Point and 35 new Examples.

Examples illustrate how the law applies in a speci�c Examples illustrate how the law applies in a speci�c Examples situation. Cases in Point present the facts and issues of an actual case and then describe the court’s decision and rationale. �ese two features are uniquely designed and consecutively numbered throughout each chapter for easy reference. �e Examples and Examples and Examples Cases in Point are inte- grated throughout the text to help students better under-grated throughout the text to help students better under-grated throughout the text to help students better under stand how courts apply legal principles in the real world.

New Unit-Ending Application and Ethics Features For the Tenth Edition, we have created an entirely new feature that concludes each of the five units in the text. Each of these Application and Ethics features provides additional analysis on a topic related to that unit and explores its ethics ramifications. Each of the features ends with two questions—a Critical Thinking and an Ethics Question. Some topics covered by these features include the following:

• The Biggest Data Breach of All Time (Unit 2) • Fantasy Sports—Legal Gambling? (Unit 3) • Health Insurance and Small Business (Unit 4) • Climate Change (Unit 5)

Suggested answers to the questions in Application and Ethics features are included in the Solutions Manual for this text.

New Cases and Case Problems For the Tenth Edition of The Legal Environment of Busi- ness, we have added fifty-two new cases and eighty-five new case problems, most from 2016 and 2015. The new cases and problems have been carefully selected to illus- trate important points of law and to be of high interest to students and instructors. We have made it a point to find recent cases that enhance learning and are relatively easy to understand.

1. Spotlight Cases and Classic Cases. Certain cases and case problems that are exceptionally good teaching cases are labeled as Spotlight Cases and Spotlight Case Problems. Examples include Spotlight on Beer Labels, Spotlight on Gucci, Spotlight on Nike, and Spotlight on the Seattle Mariners. Instructors will find these Spotlight Cases useful to illustrate the legal concepts under discussion, and students will enjoy studying the cases because they involve inter- esting and memorable facts. Other cases have been chosen as Classic Cases because they establish a legal precedent in a particular area of law.

2. Critical Thinking Section. Each case concludes with a Critical Thinking section, which normally includes two questions. The questions may address Legal Environment, E-Commerce, Economic, Envi- ronmental, Ethical, Global, Political, or Technological issues, or they may ask What If the Facts Were Differ- ent? Each Classic Case has a section titled Impact of This Case on Today’s Law and one Critical Thinking question.

3. Longer Excerpts for Case Analysis. We have also included one longer case excerpt in every chap- ter—labeled Case Analysis—followed by three Legal Reasoning Questions. The questions are designed to guide students’ analysis of the case and develop their legal reasoning skills. These Case Analysis cases may be used for case-briefing assignments and are also tied to the Special Case Analysis questions found in every unit of the text (one per unit).

Suggested answers to all case-ending questions and case problems are included in the Solutions Manual for this text.

PREFACE xv

Business Case Problem with Sample Answer in Each Chapter In response to those instructors who would like students to have sample answers available for some of the ques- tions and case problems, we include a Business Case Prob- lem with Sample Answer in each chapter. The Business Case Problem with Sample Answer is based on an actual case, and students can find a sample answer at the end of the text. Suggested answers to the Business Case Prob- lems with Sample Answers are provided in Appendix Appendix A E at the end of the text and in the Solutions Manual for this text.

New Exhibits and Concept Summaries For this edition, we have spent considerable effort reworking and redesigning all of the exhibits and Concept Summaries in the text to achieve better clarity and more Summaries in the text to achieve better clarity and more Summaries visual appeal. In addition, we have added seventeen new exhibits and three new Concept Summaries.

Special Case Analysis Questions For one chapter in every unit of the text, we provide a Special Case Analysis question that is based on the Case Analysis excerpt in that chapter. These special ques- tions appear in the Business Case Problems at the ends of selected chapters.

�e Special Case Analysis questions are designed to build students’ analytical skills. �ey test students’ ability to perform IRAC (IRAC (IRA Issue, Rule, Application, and Conclusion) case analysis. Students must identify the le- gal issue presented in the chapter’s Case Analysis Case, understand the rule of law, determine how the rule ap- plies to the facts of the case, and describe the court’s conclusion. Instructors can assign these questions as homework or use them in class to elicit student partici- pation and teach case analysis. Suggested answers to the Special Case Analysis questions can be found in the Solutions Manual for this text.

Reviewing Features in Every Chapter In the Tenth Edition of The Legal Environment of Busi- ness, we continue to offer a Reviewing feature at the end Reviewing feature at the end Reviewing of every chapter to help solidify students’ understanding of the chapter materials. Each Reviewing feature presents Reviewing feature presents Reviewing a hypothetical scenario and then asks a series of questions

that require students to identify the issues and apply the legal concepts discussed in the chapter.

�ese features are designed to help students review the chapter topics in a simple and interesting way and see how the legal principles discussed in the chapter af-see how the legal principles discussed in the chapter af-see how the legal principles discussed in the chapter af fect the world in which they live. An instructor can use these features as the basis for in-class discussion or en- courage students to use them for self-study prior to com- pleting homework assignments. Suggested answers to the questions posed in the Reviewing features can be found in the Solutions Manual for this text.

Two Issue Spotters At the conclusion of each chapter, we have included a special section with two Issue Spotters related to the chap- ter’s topics. These questions facilitate student learning and review of the chapter materials. Suggested answers to the Issue Spotters in every chapter are provided in Appendix Appendix A D at the end of the text and in the Solutions Manual for this text.

Legal Reasoning Group Activities For instructors who want their students to engage in group projects, each chapter of the Tenth Edition includes a special Legal Reasoning Group Activity. Each activity begins by describing a business scenario and then poses several specific questions pertaining to the scenario. Each question is to be answered by a different group of students based on the information in the chapter. These projects may be used in class to spur discussion or as homework assignments. Suggested answers to the Legal Reasoning Group Activities are included in the Solu- tions Manual for this text.

Supplements/Digital Learning Systems The Legal Environment of Business, Tenth Edition, pro- vides a comprehensive supplements package designed to make the tasks of teaching and learning more enjoyable and efficient. The following supplements and exciting new digital products are offered in conjunction with the text.

xvi PREFACE

MindTap MindTap for The Legal Environment of Business, Tenth Edition, is a fully online, highly personalized learning experience built upon Cengage Learning content. Mind- Tap combines student learning tools—such as readings, multimedia, activities, and assessments from Cengage- NOW—into a singular NOW—into a singular NO Learning Path that intuitively guides students through their course.

Instructors can personalize the experience by cus- tomizing authoritative Cengage Learning content and learning tools. MindTap o�ers instructors the ability to add their own content in the Learning Path with apps that integrate into the MindTap framework seamlessly with Learning Management Systems (LMS).

MindTap includes:

• An Interactive book with Whiteboard Videos Videos V and Interactive Cases.

• Automatically graded homework with the folutomatically graded homework with the folutomatically graded homework – lowing consistent question types: • Worksheets—Interactive Worksheets prepare

students for class by ensuring reading and comprehension.

• Video Video V Activities—Real-world video exercises make business law engaging and relevant.

• Brief Hypotheticals—These applications pro- vide students practice in spotting the issue and applying the law in the context of a short, fac- tual scenario.

• Case Problem Analyses—These promote deeper critical thinking and legal reasoning by guiding students step-by-step through a case problem and then adding in a critical thinking section based on “What If the Facts Were Dif-f the Facts Were Dif-f the Facts Were Dif ferent?” These now include a third section, a writing component, which requires students to demonstrate their ability to forecast the legal implications of real-world business scenarios.

• Personalized Student Plan with multimedia study tools and videos.

• New Adaptive Test Prep helps students study for exams.

• Test Bank. • Reporting and Assessment options.

By using the MindTap system, students can com- plete the assignments online and can receive instant feedback on their answers. Instructors can utilize Mind- Tap to upload their course syllabi, create and customize

homework assignments, and keep track of their students’ progress. By hiding, rearranging, or adding content, in- structors control what students see and when they see it to match the Learning Path to their course syllabus exactly. Instructors can also communicate with their students about assignments and due dates, and create re- ports summarizing the data for an individual student or for the whole class.

Cengage Learning Testing Powered by Cognero Cengage Learning Testing Powered by Cognero is a flexible, online system that allows you to do the following:

• Author, edit, and manage Test Bank content from multiple Cengage Learning solutions.

• Create multiple test versions in an instant. • Deliver tests from your LMS, your classroom, or

wherever you want.

Start Right Away! Cengage Learning Testing Powered by Cognero works on any operating system or browser.

• No special installs or downloads are needed. • Create tests from school, home, the coffee shop—

anywhere with Internet access.

What Will You Find?

• Simplicity at every step. A desktop-inspired interA desktop-inspired interA – desktop-inspired inter- desktop-inspired inter face features drop-down menus and familiar intu- itive tools that take you through content creation and management with ease.

• Full-featured test generator. Create ideal assess- ments with your choice of fifteen question types—including true/false, multiple choice, opinion scale/Likert, and essay). Multi-language support, an equation editor, and unlimited meta- data help ensure your tests are complete and compliant.

• Cross-compatible capability. Import and export content to and from other systems.

Instructor’s Companion Web Site The Web site for the Tenth Edition of The Legal Envi- ronment of Business can be found by going to www. cengagebrain.com and entering ISBN 9781305967304. The Instructor’s Companion Web Site contains the fol- lowing supplements:

PREFACE xvii

• Instructor’s Manual. Includes sections entitled “A“A“ dditional Cases Addressing This Issue” at the end of selected case synopses.

• Solutions Manual. Provides answers to all ques- tions presented in the text, including the ques- tions in each case and feature, the Issue Spotters, the Business Scenarios and Business Case Problems, and the unit-ending features.

• Test Bank. A comprehensive test bank that conA comprehensive test bank that conA – tains multiple-choice, true/false, and short essay questions.

• Case-Problem Cases. • Case Printouts. • PowerPoint Slides. • Lecture Outlines.

For Users of the Ninth Edition First of all, we want to thank you for helping make The Legal Environment of Business one of the best-selling legal environment texts in America today. Second, we want to make you aware of the numerous additions and changes that we have made in this edition—many in response to comments from reviewers.

Every chapter of the Tenth Every chapter of the Tenth E Edition has been revised as necessary to incorporate new developments in the law or to streamline the presentations. We have reorganized the chapters somewhat for better �ow and clarity and now divide the materials into �ve rather than six units. Each unit concludes with a new Application and Ethics feature. Other major changes and additions for this edi- tion include the following:

• Chapter 4 (Business and the Constitution)—The chapter has been revised and updated to be more business oriented. It has two new cases, four new Cases in Point, a new exhibit, and three new case problems. A Managerial Strategy feature on marriage equality and the constitution dis- cusses United States Supreme Court decisions on this issue.

• Chapter 5 (Business Ethics)—This chapter con- tains two new cases, two new Issue Spotters, three new Cases in Point (including a case involving Tom Brady’s suspension from the NFL as a result of “deflategate”), and three new case problems. The chapter includes a section on business ethics and social media, and discusses stakeholders and corporate social responsibility. The chapter also provides step-by-step guidance on making ethical

business decisions and includes materials on global business ethics. A new A new A Digital Update fea- ture examines whether employees should have the right to disconnect from their electronic devices after work hours.

• Chapter 8 (Intellectual Property Rights)—The materials on intellectual property rights have been thoroughly revised and updated to reflect the most current laws and trends. The 2016 case involves the Hustler Club and a trademark infringement claim between brothers. A Digital Update feature examines the problem of pat- ent trolls. There are eleven new Cases in Point, including cases involving FedEx’s color and logo, Google’s digitalization of books, and how the Sherlock Holmes copyright fell into the public domain.

• Chapter 9 (Internet Law, Social Media, and Pri- vacy)—This chapter, which was new to the last edition and covers legal issues that are unique to the Internet, has been thoroughly revised and updated for the Tenth Edition. It includes a new section on cyberstalking, two new cases, and a new Digital Update feature on whether employers can monitor employees’ social media use.

• Chapter 10 (Criminal Law and Cyber Crime)— This chapter includes three new cases, five new Cases in Point, three new examples, and three new case problems. A new A new A Managerial Strategy feature discusses the criminalization of American business.

• Chapter 11 (International and Space Law)—The chapter has been expanded to include a new sec- tion on space law—international and domestic. All three cases presented are new to this edition, including a Spotlight Case on a United States Supreme Court decision concerning the Alien Tort Claims Act. The chapter also now covers the Trans-Pacific Partnership (TPP) and includes an Ethics Today feature on the domestic brewing of imported beer brands.

• Chapters 12 through 15 (the Commercial Envi- ronment unit)—In this unit, we have added ten new cases (including two Spotlight Cases, a Classic Case, and several Case Analysis cases), and twenty new case problems. We have also added new Cases in Point, Examples, exhibits, graphic Concept Sum- maries, numbered lists, and a new Reviewing fea- ture. A new A new A Managerial Strategy feature discusses the commercial use of drones, and an Ethics Today feature examines whether there should be more relief for student loan debt.

xviii PREFACE

• Chapter 19 (Agency Relationships)—This chapter has been updated to reflect the realities of the gig economy in which many people are working as independent contractors. A new A new A Ethics Today feature continues that emphasis with a discus- sion of whether Uber and Lyft drivers should be Lyft drivers should be L considered employees rather than independent contractors. In addition, new Examples, Cases in Point, and case problems have been added to help students comprehend the important issues and liability in agency relationships.

• Chapter 20 (Employment Law)—The chapter covering employment law has been thoroughly updated to include discussions of legal issues fac- ing employers today. It has three new cases, three new Cases in Point, three new Examples (including one involving wage claims of the Oakland Raiders cheerleaders), and three new case problems. An

Ethics Today feature examines whether employees should receive paid bathroom breaks.

• Chapter 21 (Employment Discrimination)—This chapter has a new section discussing discrimina- tion based on military status and new coverage of same-sex discrimination and discrimination against transgender persons. All three cases are new. There are seven new Cases in Point, five new Examples, a new exhibit, and three new case problems. A Digi- tal Update feature discusses hiring discrimination based on social media posts. We discuss relevant United States Supreme Court decisions affecting employment issues throughout the chapter.

• Chapter 24 (Consumer Protection)—This chapter includes all new cases, and has been significantly updated with new coverage, Examples, and Cases in Point. A Digital Update feature deals with “native” ads on the Internet.

PREFACE xix

Acknowledgments for Previous Editions Since we began this project many years ago, a sizable number of legal environment of business professors and others have helped us in revising the book and it’s supplements, including the following:

Peter W. Allan Victor Valley College

William Dennis Ames Indiana University of Pennsylvania

Thomas M. Apke California State University, Fullerton

Linda Axelrod Metropolitan State University

Jane Bennett Orange Coast College

Robert C. Bird University of Connecticut

Dean Bredeson University of Texas at Austin

Sam Cassidy University of Denver

Thomas D. Cavenagh North Central College– Naperville, Illinois

Angela Cerino Villanova University

Corey Ciocchetti University of Denver

David Cooper Fullerton College

Steven R. Donley Cypress College

Paul F. Dwyer Siena College

Nena Ellison Florida Atlantic University

Joan Gabel Florida State University

Gamewell Gant Idaho State University

Jacqueline Hagerott Franklin University

Arlene M. Hibschweiler SUNY Fredonia

Barbara W. Kincaid Southern Methodist University

Marty P. Ludlum Oklahoma City Community College

Diane May Winona State University

Marty Salley McGee South Carolina State University

Robert Mitchum Arkansas State University, Beebe

Melanie Morris Raritan Valley Community College

Kathleen A. Phillips University of Houston

David Redle University of Akron

Larry A. Strate University of Nevada–Las Vegas

Dawn Swink Minnesota State University, Mankato

Brian Terry Johnson and Wales University

John Theis Mesa State College

William H. Volz Wayne State University

Michael G. Walsh Villanova University

Glynda White Community College of Southern Nevada

LeVon E. Wilson Western Carolina University

John A. Wrieden Florida International University

Eric D. Yordy Northern Arizona University

Mary-Kathryn Zachary State University of West Georgia

As in all past editions, we owe a debt of extreme grati- tude to the numerous individuals who worked directly with us or at Cengage Learning. In particular, we wish to thank Vicky True-Vicky True-V Baker, senior product manager; Su- zanne Wilder, managing content developer; Sarah Hu- ber, content developer; and Ann Borman, senior content project manager. We also thank Katie Jergens in market- ing and Michelle Kunkler, art director. We are indebted as well to the sta� at Lachina, our compositor, for accu-

rately generating pages for this text and making it pos- sible for us to meet our ambitious printing schedule.

We especially wish to thank Katherine Marie Silsbee for her management of the entire project, as well as for the application of her superb research and editorial skills. We also wish to thank William Eric Hollowell, who co- authored the Instructor’s Manual and the Test Bank, for his excellent research e�orts. We were fortunate enough to have the copyediting and proofreading services of

xx PREFACE

Beverly Peavler and Kristi Wiswell. We are grateful for the e�orts of Vickie Vickie V Reierson and Roxanna Lee for their proofreading and other assistance, which helped to en- sure an error-free text. Finally, we thank Suzanne Jasin of K & M Consulting for her many special e�orts on this project.

�rough the years, we have enjoyed an ongoing cor-�rough the years, we have enjoyed an ongoing cor-�rough the years, we have enjoyed an ongoing cor respondence with many of you who have found points

on which you wish to comment. We continue to wel- come all comments and promise to respond promptly. By incorporating your ideas, we can continue to write a legal environment text that is best for you and best for your students.

F.B.C. R.L.M.

To my parents and sisters. F.B.C.

To Ian Gowrie-Smith, Your amazingly high

energy level never ceases to amaze me.

Keep it up!

R.L.M.

Unit One

�e Foundations

1. Law and Legal Reasoning

2. Courts and Alternative Dispute Resolution

3. Court Procedures

4. Business and the Constitution

5. Business Ethics

1–1a Many Different Laws May Affect a Single Business Decision

As you will note, each chapter in this text covers specific areas of the law and shows how the legal rules in each area affect business activities. Although compartmental- izing the law in this fashion promotes conceptual clarity, it does not indicate the extent to which a number of dif-it does not indicate the extent to which a number of dif-it does not indicate the extent to which a number of dif ferent laws may apply to just one decision. Exhibit 1–1 illustrates the various areas of the law that may influence business decision making.business decision making.business decision making.business decision making.business decision making.

■ EXAMPLE 1.1 When Mark Zuckerberg started Facebook as a Harvard student, he probably did not imagine all the legal challenges his company would face as a result of his business decisions. • Shortly after Facebook was launched, others claimed

that Zuckerberg had stolen their ideas for a social net- working site. Their claims involved alleged theft of intellectual property, fraudulent misrepresentation, and

CHAPTER 1

One of the most important func-tions of law in any society is to provide stability, predictability, and continuity so that people can know how to order their affairs. If any society is to survive, its citizens must be able to determine what is legally right and legally wrong. They must know what sanctions will be imposed on them if they commit wrongful acts. If they suf- fer harm as a result of others’ wrong- ful acts, they must know how they can seek compensation. By setting forth the rights, obligations, and privileges of citi- zens, the law enables individuals to go about their business with confidence and a certain degree of predictability.

Although law has various defi- nitions, they all are based on the

general observation that law con- sists of enforceable rules governing relationships among individuals and between individuals and their society. These “enforceable rules” may con- sist of unwritten principles of behav- ior established by a nomadic tribe. They may be set forth in a law code, such as the Code of Hammurabi in ancient Babylon (c. 1780 B.C.E.) or the law code of one of today’s European nations. They may consist of written laws and court decisions created by modern legislative and judicial bod- ies, as in the United States. Regardless of how such rules are created, they all have one thing in common: they establish rights, duties, and privileges that are consistent with the values

and beliefs of their society or its rul- ing group.

In this introductory chapter, we first look at an important question for any student reading this text: How does the legal environment affect business decision making? We next describe the major sources of American law, the common law tradi- tion, and some basic schools of legal thought. We conclude the chapter with sections offering practical guid- ance on several topics, including how to find the sources of law discussed in this chapter (and referred to through- out the text) and how to read and understand court opinions.

1–1 Business Activities and the Legal Environment

Laws and government regulations affect almost all business activities—from hiring and firing decisions to workplace safety, the manufacturing and marketing of products, business financing, and more. To make good business decisions, a basic knowledge of the laws and regulations governing these activities is beneficial—if not essential.

Realize also that in today’s business world, a knowl- edge of “black-letter” law and what conduct can lead to legal liability is not enough. Businesspersons must develop critical thinking and legal reasoning skills so that they can evaluate how various laws might apply to a given situation and determine the best course of action. Busi- nesspersons are also expected to make ethical decisions. Thus, the study of business law necessarily involves an ethical dimension.

222

Law and Legal Reasoning

CHAPTER 1 Law and Legal Reasoning 3

violations of partnership law and securities law. Face- book ultimately paid $65 million to settle those claims out of court.

• Facebook has been sued repeatedly for violating users’ privacy (and federal laws) by tracking their Web site usage and by scanning private messages for purposes of data mining and user profiling. A class-action suit filed in Europe alleges that Facebook’s data-use poli- cies violate the law of the European Union. Facebook might have to pay millions in damages in this case.

• Facebook’s business decisions have also come under scrutiny by federal regulators, such as the Federal Trade Commission (FTC). The company settled a complaint filed by the FTC alleging that Facebook had failed to keep “friends” lists and other user information private. ■

1–1b Ethics and Business Decision Making Merely knowing the areas of law that may affect a busi- ness decision is not sufficient in today’s business world. Today, business decision makers need to consider not just whether a decision is legal, but also whether it is ethical.

Ethics generally is defined as the principles governing Ethics generally is defined as the principles governing Ethics what constitutes right or wrong behavior. Often, as in several of the claims against Facebook discussed above, disputes arise in business because one party feels that he or she has been treated unfairly. Thus, the underlying reason for bringing some lawsuits is a breach of ethical duties (such as when a partner or employee attempts to secretly take advantage of a business opportunity).

Throughout this text, you will learn about the rela- tionship between the law and ethics, as well as about some of the types of ethical questions that arise in business. For instance, all of the new unit-ending Application and Eth- ics features include an ics features include an ics Ethical Connection section that explores the ethical dimensions of a topic treated within the unit. We have also included Ethical Questions for Ethical Questions for Ethical Questions each unit, as well as within the critical thinking sections of many of the cases presented in this text. Ethics Today features, which focus on ethical considerations in today’s business climate, appear in selected chapters, including this chapter. A Question of Ethics case problem is included Question of Ethics case problem is included Question of Ethics at the end of every chapter to introduce you to the ethical aspects of specific cases involving real-life situations.

1–2 Sources of American Law American law has numerous sources. Often, these sources of law are classified as either primary or secondary.

Primary sources of law, or sources that establish the law, include the following: 1. The U.S. Constitution and the constitutions of the

various states. 2. Statutory law—including laws passed by Congress,

state legislatures, or local governing bodies. 3. Regulations created by administrative agencies, such

as the Federal Trade Commission. 4. Case law and common law doctrines.

EXHIBIT 1–1 Areas of the Law That Can Affect Business Decision Making

Business Decision Making

Intellectual Property

Contracts

Environmental Law and Sustainability

Internet Law, Internet Law, Internet Law Social Media, and Privacy

Product Liability

Torts

Sales

4 UNIT ONE The Foundations

We describe each of these important sources of law in the following pages.

Secondary sources of law are books and articles that Secondary sources of law are books and articles that Secondary sources of law summarize and clarify the primary sources of law. Exam- ples include legal encyclopedias, treatises, articles in law reviews, and compilations of law, such as the Restatements of the Law (which will be discussed later). Courts often refer to secondary sources of law for guidance in interpret- ing and applying the primary sources of law discussed here.

1–2a Constitutional Law The federal government and the states have separate writ- ten constitutions that set forth the general organization, powers, and limits of their respective governments. Consti- tutional law is the law as expressed in these constitutions.

According to Article VI of the U.S. Constitution, the Constitution is the supreme law of the land. As such, it is the basis of all law in the United States. A law in viola- tion of the Constitution, if challenged, will be declared unconstitutional and will not be enforced, no matter what its source. Because of its importance in the Ameri- can legal system, we present the complete text of the U.S. Constitution in Appendix B.

The Tenth Amendment to the U.S. Constitution reserves to the states all powers not granted to the federal govern- ment. Each state in the union has its own constitution. Unless it conflicts with the U.S. Constitution or a federal law, a state constitution is supreme within the state’s borders.

1–2b Statutory Law Laws enacted by legislative bodies at any level of gov- ernment, such as statutes passed by Congress or by state legislatures, make up the body of law known as statutory law. When a legislature passes a statute, that statute ulti- mately is included in the federal code of laws or the rel- evant state code of laws.

Statutory law also includes local ordinances—regu- lations passed by municipal or county governing units to deal with matters not covered by federal or state law. Ordinances commonly have to do with city or county land use (zoning ordinances), building and safety codes, and other matters affecting the local community.

A federal statute, of course, applies to all states. A state statute, in contrast, applies only within the state’s bor- ders. State laws thus may vary from state to state. No federal statute may violate the U.S. Constitution, and no state statute or local ordinance may violate the U.S. Con- stitution or the relevant state constitution.

Uniform Laws During the 1800s, the differences among state laws frequently created difficulties for

businesspersons conducting trade and commerce among the states. To counter these problems, a group of legal scholars and lawyers formed the National Conference of Commissioners on Uniform State Laws, or NCCUSL (www.uniformlaws.org), in 1892. The NCCUSL still exists today. Its object is to draft uniform laws (model statutes) for the states to consider adopting.

Each state has the option of adopting or rejecting a uniform law. Only if a state legislature adopts a uniform law does that law become part of the statutory law of that state. Note that a state legislature may adopt all or part of a uniform law as it is written, or the legislature may rewrite the law however the legislature wishes. Hence, even though many states may have adopted a uniform law, those states’ laws may not be entirely “uniform.”

The earliest uniform law, the Uniform Negotiable Instruments Law, was completed by 1896 and adopted in every state by the 1920s (although not all states used exactly the same wording). Over the following decades, other acts were drawn up in a similar manner. In all, more than two hundred uniform acts have been issued by the NCCUSL since its inception. The most ambitious uniform act of all, however, was the Uniform Commercial Code.

The Uniform Commercial Code One of the most important uniform acts is the Uniform Commercial Code (UCC), which was created through the joint efforts of the NCCUSL and the American Law Institute.1 The UCC was first issued in 1952 and has been adopted in all fifty states,2 the District of Columbia, and the Virgin Islands.

The UCC facilitates commerce among the states by providing a uniform, yet flexible, set of rules governing commercial transactions. Because of its importance in the area of commercial law, we cite the UCC frequently in this text. We also present Article 2 of the UCC in Appendix C. From time to time, the NCCUSL revises the articles contained in the UCC and submits the revised versions to the states for adoption.

1–2c Administrative Law Another important source of American law is administra- tive law, which consists of the rules, orders, and decisions of administrative agencies. An administrative agency is a federal, state, or local government agency established to perform a specific function. Administrative law and pro- cedures constitute a dominant element in the regulatory environment of business.

1. This institute was formed in the 1920s and consists of practicing attorneys, legal scholars, and judges.

2. Louisiana has not adopted Articles 2 and 2A (covering contracts for the sale and lease of goods), however.

CHAPTER 1 Law and Legal Reasoning 5

Rules issued by various administrative agencies now affect almost every aspect of a business’s operations. Reg- ulations govern a business’s capital structure and financ- ing, its hiring and firing procedures, its relations with employees and unions, and the way it manufactures and markets its products. Regulations enacted to protect the environment also often play a significant role in business operations.

Federal Agencies At the national level, the cabinet departments of the executive branch include numerous executive agencies. The U.S. Food and Drug Admin- istration, for instance, is an agency within the U.S. Department of Health and Human Services. Execu- tive agencies are subject to the authority of the presi- dent, who has the power to appoint and remove their officers.

There are also major independent regulatory agencies at the federal level, such as the Federal Trade Commission, the Securities and Exchange Commission, and the Federal Communications Commission. The president’s power is less pronounced in regard to inde- pendent agencies, whose officers serve for fixed terms and cannot be removed without just cause.

State and Local Agencies There are administrative agencies at the state and local levels as well. Commonly, a state agency (such as a state pollution-control agency) is created as a parallel to a federal agency (such as the Envi- ronmental Protection Agency). Just as federal statutes take precedence over conflicting state statutes, federal agency reg- ulations take precedence over conflicting state regulations.

1–2d Case Law and Common Law Doctrines

The rules of law announced in court decisions consti- tute another basic source of American law. These rules include interpretations of constitutional provisions, of statutes enacted by legislatures, and of regulations cre- ated by administrative agencies.

Today, this body of judge-made law is referred to as case law. Case law—the doctrines and principles announced in cases—governs all areas not covered by statutory law or administrative law and is part of our common law tradi- tion. We look at the origins and characteristics of the com- mon law tradition in some detail in the pages that follow.

See Concept Summary 1.1 for a review of the sources of American law.

ETHICS TODAY

Law as expressed in the U.S. Constitution or state constitutions. The U.S. Constitution is the supreme law of the land. State constitutions are supreme within state borders to the extent that they do not conflict with the U.S. Constitution.

Sources of American Law

●

The rules, orders, and decisions of federal, state, and local administrative agencies.

Administrative Law

Judge-made law, including interpretations of constitutional provisions, of statutes enacted by legislatures, and of regulations created by administrative agencies.

Case Law and Common Law Doctrines

Constitutional Law

Statutory Law Statutes (including uniform laws) and ordinances enacted by federal, state, and local legislatures. Federal statutes may not violate the U.S. Constitution. State statutes and local ordinances may not violate the U.S. Constitution or the relevant state constitution.

Concept SuETHICS TODAConcept SuETHICS TODAmmarETHICS TODAmmarETHICS TODAy ETHICS TODAy ETHICS TODAETHICS TODAYETHICS TODAy ETHICS TODAYETHICS TODA 1.1

6 UNIT ONE The Foundations

1–3 The Common Law Tradition Because of our colonial heritage, much of American law is based on the English legal system. Knowledge of this tradition is crucial to understanding our legal system today because judges in the United States still apply com- mon law principles when deciding cases.

1–3a Early English Courts After the Normans conquered England in 1066, William the Conqueror and his successors began the process of unifying the country under their rule. One of the means they used to do this was the establishment of the king’s courts, or curiae regis.

Before the Norman Conquest, disputes had been set- tled according to the local legal customs and traditions in various regions of the country. The king’s courts sought to establish a uniform set of customs for the country as a whole. What evolved in these courts was the begin- ning of the common law—a body of general rules that common law—a body of general rules that common law applied throughout the entire English realm. Eventually, the common law tradition became part of the heritage of all nations that were once British colonies, including the United States.

Courts of Law and Remedies at Law The early English king’s courts could grant only very limited kinds of remedies (the legal means to enforce a right or redress a wrong). If one person wronged another in some way, the king’s courts could award as compensation one or more of the following: (1) land, (2) items of value, or (3) money.

The courts that awarded this compensation became known as courts of law, and the three remedies were called remedies at law. (Today, the remedy at law normally takes the form of monetary damages—an amount given to a party whose legal interests have been injured.) This system made the procedure for settling disputes more uniform. When a complaining party wanted a remedy other than economic compensation, however, the courts of law could do nothing, so “no remedy, no right.”

Courts of Equity When individuals could not obtain an adequate remedy in a court of law, they petitioned the king for relief. Most of these petitions were decided by an adviser to the king, called a chancellor, who had the power to grant new and unique remedies. Eventually, formal chancery courts, or courts of equity, were established. Equity is a branch of law—founded on notions of justice Equity is a branch of law—founded on notions of justice Equity

and fair dealing—that seeks to supply a remedy when no adequate remedy at law is available.

Remedies in Equity The remedies granted by the equity courts became known as remedies in equity, or equitable remedies. These remedies include specific per- formance, injunction, and rescission. Specific performance involves ordering a party to perform an agreement as promised. An injunction is an order to a party to cease engaging in a specific activity or to undo some wrong or injury. Rescission is the cancellation of a contractual obli- gation. We will discuss these and other equitable remedies in more detail in later chapters.

As a general rule, today’s courts, like the early Eng- lish courts, will not grant equitable remedies unless the remedy at law—monetary damages—is inadethe remedy at law—monetary damages—is inadethe remedy at law—monetary damages—is inadethe remedy at law—monetary damages—is inade- quate. ■ EXAMPLE 1.2 Ted forms a contract (a legally Ted forms a contract (a legally binding agreement) to purchase a parcel of land that he thinks will be perfect for his future home. The seller breaches (fails to fulfill) this agreement. Ted could sue the seller for the return of any deposits or down payment he might have made on the land, but this is not the remedy he really wants. What Ted wants is to have a court order the seller to perform the contract. In other words, Ted will seek the equitable remedy of specific performance because monetary damages are inadequate in this situation. ■

Equitable Maxims In fashioning appropriate rem- edies, judges often were (and continue to be) guided by so-called equitable maxims—propositions or general statements of equitable rules. Exhibit 1–2 lists some important equitable maxims.

The last maxim listed in the exhibit—“Equity aids the vigilant, not those who rest on their rights”—merits special attention. It has become known as the equitable doctrine of laches (a term derived from the Latin laxus, meaning “lax” or “negligent”), and it can be used as a defense. A defense is an argument raised by the defen- dant (the party being sued) indicating why the plaintiff (the suing party) should not obtain the remedy sought. (Note that in equity proceedings, the party bringing a lawsuit is called the petitioner, and the party being sued is referred to as the respondent.)

The doctrine of laches arose to encourage people to bring lawsuits while the evidence was fresh. What consti- tutes a reasonable time, of course, varies according to the circumstances of the case. Time periods for different types of cases are now usually fixed by statutes of limitations. After the time allowed under a statute of limitations has expired, no action (lawsuit) can be brought, no matter how strong the case was originally.

CHAPTER 1 Law and Legal Reasoning 7

1–3b Legal and Equitable Remedies Today The establishment of courts of equity in medieval Eng- land resulted in two distinct court systems: courts of law and courts of equity. The courts had different sets of judges and granted different types of remedies. Dur- ing the nineteenth century, however, most states in the United States adopted rules of procedure that resulted in the combining of courts of law and equity. A party now may request both legal and equitable remedies in the same action, and the trial court judge may grant either or both forms of relief.

The distinction between legal and equitable remedies remains relevant to students of business law, however, because these remedies differ. To seek the proper remedy for a wrong, you must know what remedies are avail- able. Additionally, certain vestiges of the procedures used when there were separate courts of law and equity still exist. For instance, a party has the right to demand a jury trial in an action at law, but not in an action in equity. Exhibit 1–3 summarizes the procedural differ- ences (applicable in most states) between an action at law and an action in equity.

1–3c The Doctrine of Stare Decisis One of the unique features of the common law is that it is judge-made law. The body of principles and doctrines judge-made law. The body of principles and doctrines judge-made that form the common law emerged over time as judges decided legal controversies.

Case Precedents and Case Reporters When possible, judges attempted to be consistent and to base their decisions on the principles suggested by earlier cases. They sought to decide similar cases in a similar way, and they considered new cases with care because they knew that their decisions would make new law. Each interpreta- tion became part of the law on the subject and thus served as a legal precedent. A precedent is a decision that fur- nishes an example or authority for deciding subsequent cases involving identical or similar legal principles or facts.

In the early years of the common law, there was no sin- gle place or publication where court opinions, or written decisions, could be found. By the fourteenth century, por- tions of the most important decisions from each year were being gathered together and recorded in Year Books, which became useful references for lawyers and judges. In the

EXHIBIT 1–2 Equitable Maxims

Equity will not suffer a wrong to be without

a remedy (equitable relief will be awarded when there is no legal remedy)

Equity regards substance rather than form

(fairness and justice are more important than legal

technicalities)

Equity aids the vigilant, not those who

rest on their rights (neglect their rights for an

unreasonable period of time)

One seeking the aid of an equity court must come to the court with clean hands

(have acted fairly and honestly)

Where there is equal equity, e is equal equity, e is equal equity the law must prevail (the law will determine

the outcome)

Whoever seeks equity must do equity (treat others fairly)

8 UNIT ONE The Foundations

sixteenth century, the Year Books were discontinued, and Year Books were discontinued, and Year Books other forms of case publication became available. Today, cases are published, or “reported,” in volumes called reportcases are published, or “reported,” in volumes called reportcases are published, or “reported,” in volumes called – ers, or reports—and are also posted online. We describe reports—and are also posted online. We describe reports— today’s case reporting system in detail later in this chapter.

Stare Decisis and the Common Law Tradition The practice of deciding new cases with reference to for- mer decisions, or precedents, became a cornerstone of the English and American judicial systems. The practice formed a doctrine known as stare decisis,3 a Latin phrase meaning “to stand on decided cases.”

Under the doctrine of stare decisis, judges are obli- gated to follow the precedents established within their jurisdictions. The term jurisdiction refers to a geographic area in which a court or courts have the power to apply the law. Once a court has set forth a principle of law as being applicable to a certain set of facts, that court must apply the principle in future cases involving similar facts. Courts of lower rank (within the same jurisdiction) must do likewise. Thus, stare decisis has two aspects:stare decisis has two aspects:stare decisis 1. A court should not overturn its own precedents

unless there is a compelling reason to do so. 2. Decisions made by a higher court are binding on

lower courts.

Controlling Precedents Precedents that must be followed within a jurisdiction are called controlling

precedents. Controlling precedents are a type of binding authority. A binding authority is any source of law that a binding authority is any source of law that a binding authority court must follow when deciding a case. Binding authori- ties include constitutions, statutes, and regulations that govern the issue being decided, as well as court decisions that are controlling precedents within the jurisdiction. United States Supreme Court case decisions, no matter how old, remain controlling until they are overruled by a subsequent decision of the Supreme Court or changed by further legislation or a constitutional amendment.

Stare Decisis and Legal Stability The doctrine of stare decisis helps the courts to be more efficient because, stare decisis helps the courts to be more efficient because, stare decisis if other courts have analyzed a similar case, their legal rea- soning and opinions can serve as guides. Stare decisis also Stare decisis also Stare decisis makes the law more stable and predictable. If the law on a subject is well settled, someone bringing a case can usu- ally rely on the court to rule based on what the law has been in the past. See this chapter’s Ethics Today feature for a discussion of how courts often defer to case precedent even when they disagree with the reasoning in the case.

Although courts are obligated to follow precedents, sometimes a court will depart from the rule of precedent if it decides that the precedent should no longer be fol- lowed. If a court decides that a ruling precedent is sim- ply incorrect or that technological or social changes have rendered the precedent inapplicable, the court might rule contrary to the precedent. Cases that overturn precedent often receive a great deal of publicity.often receive a great deal of publicity.often receive a great deal of publicity.often receive a great deal of publicity.

■ CASE IN POINT 1.3 The United States Supreme The United States Supreme Court expressly overturned precedent in the case of

EXHIBIT 1–3 Procedural Differences between Actions at Law and Actions in Equity

Monetary damages

Initiation of lawsuit

Parties

Result

Remedy

By filing a petition

Petitioner and respondent

Decree

Injunction, specific performance, or rescission

By filing a complaint

Plaintiff and defendant

Decision By judge (no jury)By jury or judge

Judgment

PROCEDURE

ACTION IN EQUITYACTION AT LAW

CHAPTER 1 Law and Legal Reasoning 9

were inherently unequal. The Supreme Court’s depar- ture from precedent in this case received a tremendous amount of publicity as people began to realize the rami- fications of this change in the law. ■

Note that a lower court will sometimes avoid apply-Note that a lower court will sometimes avoid apply-Note that a lower court will sometimes avoid apply ing a precedent set by a higher court in its jurisdiction by

Brown v. Board of Education of Topeka.4 The Court con- cluded that separate educational facilities for whites and blacks, which it had previously upheld as constitutional,5

Stare Decisis versus Spider-Man

Supreme Court Justice Elena Kagan, in a recent decision involving Marvel Comics’ Spider- Man, ruled that, “What we can decide, we can undecide. But stare decisis teaches that we stare decisis teaches that we stare decisis should exercise that authority sparingly.” Cit- ing a Spider-Man comic book, she went on to say that “in this world, with great power there must also come—great responsibility.”a In its decision in the case—Kimble v. Marvel Entertainment, LLC—the Supreme Court applied LLC—the Supreme Court applied LLC stare decisis and ruled stare decisis and ruled stare decisis against Stephen Kimble, the creator of a toy related to the Spider-Man figure.b

Can a Patent Involving Spider-Man Last Super Long? A patent is an exclusive right granted to the creator of an invention. Under U.S. law, patent owners gener- ally possess that right for twenty years. Patent holders can license the use of their patents as they see fit dur- ing that period. In other words, they can allow others (called licensees) to use their invention in return for a fee (called royalties).

More than fifty years ago, the Supreme Court ruled in its Brulotte decision that a licensee cannot be forced Brulotte decision that a licensee cannot be forced Brulotte to pay royalties to a patent holder after the patent has expired.c So if a licensee signs a contract to continue to pay royalties after the patent has expired, the contract is invalid and thus unenforceable.

At issue in the Kimble case was a contract signed between Marvel Entertainment and Kimble, who had invented a toy made up of a glove equipped with a valve and a canister of pressurized foam. The patented toy allowed people to shoot fake webs intended to look like Spider-Man’s. In 1990, Kimble tried to cut a deal with Marvel Entertainment concerning his toy, but he was unsuccessful. Then Marvel started selling its own version of the toy.

When Kimble sued Marvel for patent infringement, he won. The result was a settle- ment that involved a licensing agreement between Kimble and Marvel with a lump-sum payment plus a royalty to Kimble of 3 percent of all sales of the toy. The agreement did not specify an end date for royalty payments to Kimble, and Marvel later sued to have the pay-

ments stop after the patent expired, consistent with the Court’s earlier Brulotte decision.

A majority of the Supreme Court justices agreed with Marvel. As Justice Kagan said in the opinion, “Patents endow their holders with certain super powers, but only for a limited time.” The court further noted that the fifty- year-old Brulotte decision was perhaps based on what Brulotte decision was perhaps based on what Brulotte today is an outmoded understanding of economics. That decision, according to some, may even hinder competi- tion and innovation. But “respecting stare decisis means stare decisis means stare decisis sticking to some wrong decisions.”

The Ethical Side In a dissenting opinion, Supreme Court Justice Samuel A. Alito, Jr., said, “The decision interferes with the abil- ity of parties to negotiate licensing agreements that reflect the true value of a patent, and it disrupts con- tractual expectations. Stare decisis does not require us Stare decisis does not require us Stare decisis to retain this baseless and damaging precedent. . . . Stare decisis is important to the rule of law, but so are Stare decisis is important to the rule of law, but so are Stare decisis correct judicial decisions.”

In other words, stare decisis holds that courts should stare decisis holds that courts should stare decisis adhere to precedent in order to promote predictability and consistency. But in the business world, shouldn’t parties to contracts be able to, for example, allow a patent licensee to make smaller royalty payments that exceed the life of the patent? Isn’t that a way to reduce the yearly costs to the licensee? After all, the licensee may be cash-strapped in its initial use of the patent. Shouldn’t the parties to a contract be the ones to decide how long the contract should last?

Critical Thinking When is the Supreme Court justified in not following the doctrine of stare decisis?

ETHICS TODAY

a. “Spider-Man,” Amazing Fantasy No. 15 (1962), p. 13. b. 576 U.S. __, 135 S.Ct. 2401, 192 L.Ed.2d 463 (2015). c. Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176 (1964).

4. 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873 (1954). 5. See Plessy v. Ferguson, 163 U.S. 537, 16 S.Ct. 1138, 41 L.Ed. 256 (1896).Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203

10 UNIT ONE The Foundations

distinguishing the two cases based on their facts. When this happens, the lower court’s ruling stands unless it is appealed to a higher court and that court overturns the decision.

When There Is No Precedent Occasionally, courts must decide cases for which no precedents exist, called cases of first impression. For instance, as you will read throughout this text, the Internet and certain other tech- nologies have presented many new and challenging issues for the courts to decide.

■ EXAMPLE 1.4 Google Glass is a Bluetooth-enabled, hands-free, wearable computer. A person using Google Glass can take photos and videos, surf the Internet, and do other things through voice commands. Many people expressed concerns about this new technology. Privacy advocates claimed that it is much easier to secretly film or photograph others with wearable video technology than with a camera or a smartphone. Indeed, numerous bars and restaurants, among others, banned the use of Google Glass to protect their patrons’ privacy. Police officers were concerned about driver safety. A California woman was ticketed for wearing Google Glass while driving. But the court dismissed this case of first impression because it was not clear whether the device had been in operation at the time of the offense. ■

In deciding cases of first impression, courts often look at persuasive authorities—legal authorities that a court may consult for guidance but that are not binding on the court. A court may consider precedents from other jurisdictions, for instance, although those precedents are not binding. A court may also consider legal principles and policies underlying previous court decisions or exist- ing statutes. Additionally, a court might look at issues of fairness, social values and customs, and public policy (governmental policy based on widely held societal val- ues). Today, federal courts can also look at unpublished opinions (those not intended for publication in a printed legal reporter) as sources of persuasive authority.6

1–3d Stare Decisis and Legal Reasoning In deciding what law applies to a given dispute and then applying that law to the facts or circumstances of the case, judges rely on the process of legal reasoning. Through the use of legal reasoning, judges harmonize their decisions with those that have been made before, as the doctrine of stare decisis requires.

Students of business law and the legal environment also engage in legal reasoning. For instance, you may be asked to provide answers for some of the case problems

that appear at the end of every chapter in this text. Each problem describes the facts of a particular dispute and the legal question at issue. If you are assigned a case problem, you will be asked to determine how a court would answer that question, and why. In other words, you will need to give legal reasons for whatever conclusion you reach.7 We look next at the basic steps involved in legal reasoning and then describe some forms of reasoning commonly used by the courts in making their decisions.

Basic Steps in Legal Reasoning At times, the legal arguments set forth in court opinions are rela- tively simple and brief. At other times, the arguments are complex and lengthy. Regardless of the length of a legal argument, however, the basic steps of the legal rea- soning process remain the same. These steps, which you can also follow when analyzing cases and case problems, form what is commonly referred to as the IRAC method of legal reasoning. IRAC is an acronym formed from the first letters of the words Issue, Rule, Application, and Con- clusion. To apply the IRAC method, you ask the follow- ing questions: 1. Issue—What are the key facts and issues? Suppose that

a plaintiff comes before the court claiming assault (words or acts that wrongfully and intentionally make another person fearful of immediate physi- cal harm). The plaintiff claims that the defendant threatened her while she was sleeping. Although the plaintiff was unaware that she was being threatened, her roommate heard the defendant make the threat. The legal issue is whether the defendant’s action constitutes the tort of assault, given that the plaintiff was unaware of that action at the time it occurred. (A tort is a wrongful act. As you will see later, torts fall under the governance of civil law rather than criminal law.)

2. Rule—What rule of law applies to the case? A rule of law may be a rule stated by the courts in previous decisions, a state or federal statute, or a state or federal administrative agency regulation. In our hypothetical case, the plaintiff alleges (claims) that the defendant committed a tort. Therefore, the applicable law is the common law of torts—specifically, tort law govern- ing assault. Case precedents involving similar facts and issues thus would be relevant. Often, more than one rule of law will be applicable to a case.

3. Application—How does the rule of law apply to the particular facts and circumstances of this case? This step is often the most difficult because each case presents a unique set of facts, circumstances, and parties.

6. See Rule 32.1 of the Federal Rules of Appellate Procedure. 7. See Appendix A for further instructions on how to analyze case problems.Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203

CHAPTER 1 Law and Legal Reasoning 11

Although cases may be similar, no two cases are ever identical in all respects. Normally, judges (and law- yers and law students) try to find cases on point— cases on point— cases on point previously decided cases that are as similar as possible to the one under consideration.

4. Conclusion—What conclusion should be drawn? This step normally presents few problems. Usually, the conclusion is evident if the previous three steps have been followed carefully.

There Is No One “Right” Answer Many people believe that there is one “right” answer to every legal question. In most legal controversies, however, there is no single correct result. Good arguments can usually be made to support either side of a legal controversy. Quite often, a case does not involve a “good” person suing a “bad” person. In many cases, both parties have acted in good faith in some measure or in bad faith to some degree. Additionally, each judge has her or his own per- sonal beliefs and philosophy. At least to some extent, these personal factors shape the legal reasoning process. In short, the outcome of a particular lawsuit before a court cannot be predicted with certainty.

1–3e The Common Law Today Today, the common law derived from judicial decisions continues to be applied throughout the United States. Common law doctrines and principles, however, govern only areas not covered by statutory or administrative law. In not covered by statutory or administrative law. In not a dispute concerning a particular employment practice, for instance, if a statute regulates that practice, the statute will apply rather than the common law doctrine that applied before the statute was enacted. The common law tradition and its application are reviewed in Concept Summary 1.2.

Courts Interpret Statutes Even in areas governed by statutory law, judge-made law continues to be impor- tant because there is a significant interplay between statu- tory law and the common law. For instance, many statutes essentially codify existing common law rules, and regula- tions issued by various administrative agencies usually are based, at least in part, on common law principles. Addi- tionally, the courts, in interpreting statutory law, often rely on the common law as a guide to what the legislators intended. Frequently, the applicability of a newly enacted statute does not become clear until a body of case law devel- ops to clarify how, when, and to whom the statute applies.

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The Common Law Tradition

The American legal system is based on the common law tradition, which originated in medieval England.

Remedies at law (land, items of value, or money) and remedies in equity (including specific performance, injunction, and rescission of a contractual obligation) originated in the early English courts of law and courts of equity, respectively.

Case Precedents and the Doctrine of Stare DecisisStare DecisisStar

In the king’s courts, judges attempted to make their decisions consistent with previous decisions, called precedents. This practice gave rise to the doctrine of stare decisis. This doctrine, which became a cornerstone of the common law tradition, obligates judges to abide by precedents established in their jurisdictions.

Concept SuETHICS TODAConcept SuETHICS TODAmmarETHICS TODAmmarETHICS TODAy ETHICS TODAy ETHICS TODAETHICS TODAYETHICS TODAy ETHICS TODAYETHICS TODA 1.2

Origins of Common Law

The common law governs all areas not covered by statutory law or administrative laws. Courts interpret statutes and regulations.

Common Law TodayCommon Law TodayCommon Law T

Legal and Equitable Remedies

12 UNIT ONE The Foundations

Clearly, a judge’s function is not to make the laws—that make the laws—that make is the function of the legislative branch of government— but to interpret and apply them. From a practical point of view, however, the courts play a significant role in defining the laws enacted by legislative bodies, which tend to be expressed in general terms. Judges thus have some flexibility in interpreting and applying the law. It is because of this flexibility that different courts can, and often do, arrive at different conclusions in cases that involve nearly identical issues, facts, and applicable laws.

Restatements of the Law Clarify and Illus- trate the Common Law The American Law Insti- tute (ALI) has published compilations of the common law called Restatements of the Law, which generally summarize the common law rules followed by most states. There are Restatements of the Law in the areas of contracts, torts, Restatements of the Law in the areas of contracts, torts, Restatements of the Law agency, trusts, property, restitution, security, judgments, and conflict of laws. The Restatements, like other secondary sources of law, do not in themselves have the force of law, but they are an important source of legal analysis and opin- ion. Hence, judges often rely on them in making decisions.

Many of the Restatements are now in their second, third, Restatements are now in their second, third, Restatements or fourth editions. We refer to the Restatements frequently Restatements frequently Restatements in subsequent chapters of this text, indicating in parenthe- ses the edition to which we are referring. For instance, we refer to the third edition of the Restatement of the Law of Contracts as simply the Contracts as simply the Contracts Restatement (Third) of Contracts.

1–4 Schools of Legal Thought How judges apply the law to specific cases, including dis- putes relating to the business world, depends in part on their philosophical approaches to law. Thus, the study of law, or jurisprudence, involves learning about different schools of legal thought and how the approaches to law characteristic of each school can affect judicial decision making.

1–4a The Natural Law School An age-old question about the nature of law has to do with the finality of a nation’s laws. What if a particular law is deemed to be a “bad” law by a substantial number of the nation’s citizens? Must they obey that law? According to the natural law theory, a higher, or universal, law exists that applies to all human beings. Each written law should reflect the principles inherent in natural law. If it does not, then it loses its legitimacy and need not be obeyed.

The natural law tradition is one of the oldest and most significant schools of jurisprudence. It dates back to the days of the Greek philosopher Aristotle (384–322

b.c.e.), who distinguished between natural law and the laws governing a particular nation. According to Aristo- tle, natural law applies universally to all humankind.

The notion that people have “natural rights” stems from the natural law tradition. Those who claim that a specific foreign government is depriving certain citizens of their human rights, for instance, are implicitly appeal- ing to a higher law that has universal applicability.

The question of the universality of basic human rights also comes into play in the context of international busi- ness operations. U.S. companies that have operations abroad often hire foreign workers as employees. Should the same laws that protect U.S. employees apply to these foreign employees? This question is rooted implicitly in a concept of universal rights that has its origins in the natural law tradition.

1–4b The Positivist School Positive law, or national law, is the written law of a given society at a particular time. In contrast to natural law, it applies only to the citizens of that nation or society. Those who adhere to legal positivism believe that there can be no higher law than a nation’s positive law.

According to the positivist school, there are no “natu- ral rights.” Rather, human rights exist solely because of laws. If the laws are not enforced, anarchy will result. Thus, whether a law is “bad” or “good” is irrelevant. The law is the law and must be obeyed until it is changed—in an orderly manner through a legitimate lawmaking pro- cess. A judge who takes this view will probably be more inclined to defer to an existing law than would a judge who adheres to the natural law tradition.

1–4c The Historical School The historical school of legal thought emphasizes the evo- lutionary process of law by concentrating on the origin and history of the legal system. This school looks to the past to discover what the principles of contemporary law should be. The legal doctrines that have withstood the passage of time—those that have worked in the past—are deemed best suited for shaping present laws. Hence, law derives its legitimacy and authority from adhering to the standards that historical development has shown to be workable. Fol- lowers of the historical school are more likely than those of other schools to strictly follow decisions made in past cases.

1–4d Legal Realism In the 1920s and 1930s, a number of jurists and scholars, known as legal realists, rebelled against the historical approach

CHAPTER 1 Law and Legal Reasoning 13

to law. Legal realism is based on the idea that law is just one of many institutions in society and that it is shaped by social forces and needs. Because the law is a human enterprise, this school reasons that judges should take social and economic realities into account when deciding cases.

Legal realists also believe that the law can never be applied with total uniformity. Given that judges are human beings with unique personalities, value systems, and intellects, different judges will obviously bring differ- ent reasoning processes to the same case. Female judges, for instance, might be more inclined than male judges to consider whether a decision might have a negative impact on the employment of women or minorities.

Legal realism strongly influenced the growth of what is sometimes called the sociological school, which views law as a tool for promoting justice in society. In the 1960s, for instance, the justices of the United States Supreme Court helped advance the civil rights movement by upholding long-neglected laws calling for equal treatment for all Americans, including African Americans and other minor- ities. Generally, jurists who adhere to this philosophy of law are more likely to depart from past decisions than are jurists who adhere to other schools of legal thought.

Concept Summary 1.3 reviews the schools of juris- prudential thought.

1–5 Classifications of Law The law may be broken down according to several clas- sification systems. One system, for instance, divides law into substantive law and procedural law. Substantive law consists of all laws that define, describe, regulate, and create legal rights and obligations. Procedural law consists of all laws that outline the methods of enforcing the rights established by substantive law.

Note that many statutes contain both substantive and procedural provisions. ■ EXAMPLE 1.5 A state law that A state law that provides employees with the right to workers’ compensa- tion benefits for on-the-job injuries is a substantive law tion benefits for on-the-job injuries is a substantive law tion benefits because it creates legal rights. Procedural laws estab- lish the method by which an employee must notify the employer about an on-the-job injury, prove the injury, and periodically submit additional proof to continue receiving workers’ compensation benefits. ■

Other classification systems divide law into federal law and state law, private law (dealing with relationships between private entities) and public law (addressing the relationship between persons and their governments), and national law and international law. Here we look at still another classification system, which divides law into

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Schools of Jurisprudential Thought

One of the oldest and most significant schools of legal thought. Those who believe in natural law hold that there is a universal law applicable to all human beings.

Concept SuETHICS TODAConcept SuETHICS TODAmmarETHICS TODAmmarETHICS TODAy ETHICS TODAy ETHICS TODAETHICS TODAYETHICS TODAy ETHICS TODAYETHICS TODA 1.3

Natural Law School

A school of legal thought that stresses the evolutionary nature of law and looks to doctrines that have withstood the passage of time for guidance in shaping present laws.

Historical School

A school of legal thought that advocates a less abstract and more realistic and pragmatic approach to the law and takes into account customary practices and the circumstances surrounding the particular transaction.

Legal Realism

A school of legal thought centered on the assumption that there is no law higher than the laws created by the government.

Positivist School

14 UNIT ONE The Foundations

civil law and criminal law. We also explain what is meant by the term cyberlaw.

1–5a Civil Law and Criminal Law Civil law spells out the rights and duties that exist between persons and between persons and their govern- ments, as well as the relief available when a person’s rights are violated. Typically, in a civil case, a private party sues another private party who has failed to comply with a duty. (Note that the government can also sue a party for a civil law violation.) Much of the law that we discuss in this text is civil law, including contract law and tort law.

Criminal law, in contrast, is concerned with wrongs committed against the public as a whole. Criminal acts are defined and prohibited by local, state, or federal govern- ment statutes. Criminal defendants are thus prosecuted by public officials, such as a district attorney (D.A.), on behalf of the state, not by their victims or other private parties. Some statutes, such as those protecting the environment or investors, have both civil and criminal provisions.

1–5b Cyberlaw The use of the Internet to conduct business has led to new types of legal issues. In response, courts have had to adapt traditional laws to situations that are unique to our age. Additionally, legislatures at both the federal and the state levels have created laws to deal specifically with such issues.

Frequently, people use the term cyberlaw to refer to the emerging body of law that governs transactions con- ducted via the Internet. Cyberlaw is not really a classifica- tion of law, though, nor is it a new type of law. Rather, it type of law. Rather, it type is an informal term used to refer to both new laws and modifications of traditional laws that relate to the online environment. Throughout this book, you will read how the law in a given area is evolving to govern specific legal issues that arise in the online context.

1–6 How to Find Primary Sources of Law

This text includes numerous references, or citations, to primary sources of law—federal and state statutes, the U.S. Constitution and state constitutions, regula- tions issued by administrative agencies, and court cases. A citation identifies the publication in which a legal authority—such as a statute or a court decision or other source—can be found. In this section, we explain how you can use citations to find primary sources of law. Note

that in addition to being published in sets of books, as described next, most federal and state laws and case deci- sions are available online.

1–6a Finding Statutory and Administrative Law

When Congress passes laws, they are collected in a pub- lication titled United States Statutes at Large. When state legislatures pass laws, they are collected in similar state publications. Most frequently, however, laws are referred to in their codified form—that is, the form in which they appear in the federal and state codes. In these codes, laws are compiled by subject.

United States Code The United States Code (U.S.C.) United States Code (U.S.C.) United States Code arranges all existing federal laws by broad subject. Each of the fifty-two subjects is given a title and a title number. For instance, laws relating to commerce and trade are col- lected in Title 15, “Commerce and Trade.” Each title is subdivided by sections. A citation to the U.S.C. includes both title and section numbers. Thus, a reference to “15 U.S.C. Section 1” means that the statute can be found in Section 1 of Title 15. (“Section” may be designated by the symbol §, and “Sections,” by §§.)

In addition to the print publication, the federal gov- ernment provides a searchable online database at www .gpo.gov. It includes the United States Code, the U.S. Constitution, and many other federal resources. (Click on “Libraries” and then “Core Documents of Our Democracy” to find these resources.)

Commercial publications of federal laws and regula- tions are also available. For instance, Thomson Reuters publishes the United States Code Annotated (U.S.C.A.). United States Code Annotated (U.S.C.A.). United States Code Annotated The U.S.C.A. contains the official text of the U.S.C., plus notes (annotations) on court decisions that interpret and apply specific sections of the statutes. The U.S.C.A. also includes additional research aids, such as cross- references to related statutes, historical notes, and library references. A citation to the U.S.C.A. is similar to a cita- tion to the U.S.C.: “15 U.S.C.A. Section 1.”

State Codes State codes follow the U.S.C. pattern of arranging law by subject. They may be called codes, revi- sions, compilations, consolidations, general statutes, or statutes, depending on the preferences of the states.

In some codes, subjects are designated by number. In some codes, subjects are designated by number. In some codes, subjects are designated by number. In others, they are designated by name. ■ EXAMPLE 1.6 “13 Pennsylvania Consolidated Statutes Section 1101” means that the statute can be found in Title 13, Section 1101, of the Pennsylvania code. “California Commercial Code Section 1101” means that the statute can be found

CHAPTER 1 Law and Legal Reasoning 15

under the subject heading “Commercial Code” of the California code in Section 1101. Abbreviations are often used. For example, “13 Pennsylvania Consolidated Stat- utes Section 1101” is abbreviated “13 Pa. C.S. § 1101,” and “California Commercial Code Section 1101” is abbreviated “Cal. Com. Code § 1101.” ■

Administrative Rules Rules and regulations adopted by federal administrative agencies are initially published in the Federal Register, a daily publication of the U.S. gov- ernment. Later, they are incorporated into the Code of Federal Regulations (C.F.R.). The C.F.R. is available online Federal Regulations (C.F.R.). The C.F.R. is available online Federal Regulations on the government database (www.gpo.gov).

Like the U.S.C., the C.F.R. is divided into titles. Rules within each title are assigned section numbers. A full citation to the C.F.R. includes title and section num- bers. ■ EXAMPLE 1.7 A reference to “17 C.F.R. Section 230.504” means that the rule can be found in Section 230.504 of Title 17. ■

1–6b Finding Case Law Before discussing the case reporting system, we need to look briefly at the court system. There are two types of courts in the United States, federal courts and state courts. Both systems consist of several levels, or tiers, of courts. Trial courts, in which evidence is presented and testimony given, are on the bottom tier. Decisions from a trial court can be appealed to a higher court, which commonly is an intermediate court of appeals, or appellate court. Decisions from these intermediate courts of appeals may be appealed to an even higher court, such as a state supreme court or the United States Supreme Court.

State Court Decisions Most state trial court deci- sions are not published in books (except in New York and a few other states, which publish selected trial court opin- ions). Decisions from state trial courts are typically filed in the office of the clerk of the court, where the decisions are available for public inspection. (Increasingly, they can be found online as well.)

Written decisions of the appellate, or reviewing, courts, however, are published and distributed (in print and online). As you will note, most of the state court cases presented in this textbook are from state appellate courts. The reported appellate decisions are published in volumes called reports or reports or reports reporters, which are numbered consecutively. State appellate court decisions are found in the state reporters of that particular state. Official reports are published by the state, whereas unofficial reports are published by nongovernment entities.

Regional Reporters. State court opinions appear in regional units of the West’s National Reporter System, published by �omson Reuters. Most lawyers and librar- ies have these reporters because they report cases more quickly and are distributed more widely than the state- published reporters. In fact, many states have eliminated their own reporters in favor of the National Reporter System.

The National Reporter System divides the states into the following geographic areas: Atlantic (A., A.2d, Atlantic (A., A.2d, Atlantic or A.3d), North Eastern (N.E. or N.E.2d), North West-North West-North West ern (N.W. or N.W.2d), Pacific (P., P.2d, or P.3d), Pacific (P., P.2d, or P.3d), Pacific South Eastern (S.E. or S.E.2d), South Western (S.W., S.W.2d, or S.W.3d), and Southern (So., So.2d, or So.3d). (The 2d and 2d and 2d 3d in the preceding abbreviations refer to 3d in the preceding abbreviations refer to 3d Sec- ond Series and ond Series and ond Series Third Series, respectively.) The states included in each of these regional divisions are indi- cated in Exhibit 1–4, which illustrates the National Reporter System.

Case Citations. After appellate decisions have been pub- lished, they are normally referred to (cited) by the name of the case and the volume, name, and page number of the reporter(s) in which the opinion can be found. �e citation �rst lists the state’s o�cial reporter (if di�erent from the National Reporter System), then the National Reporter, and then any other selected reporter. (Citing a reporter by volume number, name, and page number, in that order, is common to all citations. �e year that the decision was issued is often included at the end in parentheses.) When more than one reporter is cited for the same case, each reference is called a parallel citation.

Note that some states have adopted a “public domain citation system” that uses a somewhat different format for the citation. For instance, in Wisconsin, a Wiscon- sin Supreme Court decision might be designated “2016 WI 40,” meaning that the case was decided in the year 2016 by the Wisconsin Supreme Court and was the forti- eth decision issued by that court during that year. Parallel citations to the Wisconsin Reports and the Wisconsin Reports and the Wisconsin Reports North Western Reporter Reporter Reporter are still included after the public domain citation.

■ EXAMPLE 1.8 Consider the following case citation: Summerhill, LLC v. City of Meridan, 162 Conn.App. 469, 131 A.3d. 1225 (2016). We see that the opinion in this case can be found in Volume 162 of the official Con- necticut Appellate Court Reports, on page 469. The paral- lel citation is to Volume 131 of the Atlantic Reporter, Third Series, page 1225. ■

When we present opinions in this text, in addition to the reporter, we give the name of the court hearing the case and the year of the court’s decision. Sample citations to state court decisions are explained in Exhibit 1–5.

16 UNIT ONE The Foundations

EXHIBIT 1–4 National Reporter System—Regional/Federal

NATIONAL REPORTER SYSTEM MAP

Coverage Connecticut, Delaware, District of Columbia, Maine, Maryland, New Hampshire, New Jersey, Pennsylvania, Rhode Island, and Ve, New Jersey, Pennsylvania, Rhode Island, and Ve, New Jersey er, Pennsylvania, Rhode Island, and Ver, Pennsylvania, Rhode Island, and V mont. Illinois, Indiana, Massachusetts, New York, and Ohio.Illinois, Indiana, Massachusetts, New York, and Ohio.Illinois, Indiana, Massachusetts, New Y Iowa, Michigan, Minnesota, Nebraska, North Dakota, South Dakota, and Wisconsin. Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kansas, Montana, Nevada, New Mexico, Oklahoma, Oregon, Utah, Washington, and Wyoming. Georgia, North Carolina, South Carolina, Virginia, and West Virginia. Arkansas, Kentucky, Missouri, TArkansas, Kentucky, Missouri, TArkansas, Kentucky ennessee, and T, Missouri, Tennessee, and T, Missouri, T exas.ennessee, and Texas.ennessee, and T

Alabama, Florida, Louisiana, and Mississippi.

U.S. Circuit Courts from 1880 to 1912; U.S. Commerce Court from 1911 to 1913; U.S. District Courts from 1880 to 1932; U.S. Court of Claims (now called U.S. Court of Federal Claims) from 1929 to 1932 and since 1960; U.S. Courts of Appeals since 1891; U.S. Court of Customs and Patent Appeals since 1929; U.S. Emergency Court of Appeals since 1943. U.S. Court of Claims from 1932 to 1960; U.S. District Courts since 1932; U.S. Customs Court since 1956. U.S. District Courts involving the Federal Rules of Civil Procedure since 1939 and Federal Rules of Criminal Procedure since 1946. United States Supreme Court since the October term of 1882. Bankruptcy decisions of U.S. Bankruptcy Courts, U.S. District Courts, U.S. Courts of Appeals, and the United States Supreme Court. U.S. Court of Military Appeals and Courts of Military Review for the Army, Navy, Air ForNavy, Air ForNavy ce, and Coast Guard.

1885

1885 1879

1883

1887 1886

1887

1880

1932

1939

1882 1980

1978

Atlantic Reporter (A., A.2d, or A.3d)

North Eastern Reporth Eastern Reporth Easter ter (N.E. or N.E.2d) North Westerth Westerth W n Reporestern Reporester ter (N.W. or N.W.2d)

Pacific Reporter (P., P (P., P (P .2d, or P., P.2d, or P., P .3d).2d, or P.3d).2d, or P

South Eastern ReporSouth Eastern ReporSouth Easter ter (S.E. or S.E.2d) South WesterSouth WesterSouth W n Reporestern Reporester ter (S.W., S.W.2d, or S.W.3d) Southern ReporSouthern ReporSouther ter (So., So.2d, or So.3d)

Federal Reporters Federal Reporter (F., F.2d, or F.3d)

Federal Supplement (F.Supp., F.Supp.2d, or F.Supp.3d)

Federal Rules Decisions (F.R.D.)

Supreme CourSupreme CourSupr t Reporter (S.Ct.) Bankruptcy Reporter (Bankr.)

Military Justice ReporMilitary Justice ReporMilitar ter (M.J.)

Regional Reporters Coverage Beginning

TENN.

VT.VT.

ALASKA

HAWAIIHAWAIIHAWAIIHAWAIIHAWAIIHAWAIIHAWAIIHAWAIIHAWAIIHAWAIIHAWAII

WASH.

OREGON

CALIF.

NEVADA

IDAHO

MONTANA

WYOMING

UTAH

ARIZONA N. MEXICO

COLORADO

NEBR.

S. DAK.

N. DAK.

KANSAS

OKLA.

TEXAS

ARK.

MO.

IOWA

MINN.

WIS.

ILL. IND.

MICH.

OHIO

KY.

MISS. ALA.

LA.

GA.

FLA.

S. CAR.

N. CAR.

VA. W.VA.

PA.

N.Y.

ME.

DEL.DEL.DEL.DEL.DEL.DEL.DEL.DEL.DEL.DEL.DEL.DEL.DEL.DEL.DEL. MD.MD.MD.MD.MD.MD.

N.J. CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.CONN.

R.I.R.I.R.I.R.I.

MASS.MASS.MASS.MASS.MASS.MASS. N.H.N.H.N.H.N.H.N.H.N.H.N.H.N.H.N.H.N.H.

PacificPacificPacificPacific North WesterNorth WesterNorth WesterNorth Western South WesteSouth WesteSouth WesteSouth Western North EasterNorth EasterNorth EasterNorth Eastern AtlanticAtlanticAtlantic South EasteSouth EasteSouth Eastern SoutherSoutherSouthern

CHAPTER 1 Law and Legal Reasoning 17

EXHIBIT 1–5 How to Read Citations

292 Neb. 681, 874 N.W.2d 681 (2016)292 Neb. 681, 874 N.W.2d 681 (2016)292 Neb. 681, 874 N.W a

243 Cal.App.4th 1366, 197 Cal.Rptr.3d 647 (2016) 243 Cal.App.4th 1366, 197 Cal.Rptr.3d 647 (2016) 243 Cal.App.4th 1366, 197 Cal.Rptr

136 A.D.3d 1094, 24 N.Y.S.3d 448 (2016) 136 A.D.3d 1094, 24 N.Y.S.3d 448 (2016) 136 A.D.3d 1094, 24 N.Y

298 Ga.App. 324, 781 S.E.2d 772 (2016)

___ U.S. ___, 136 S.Ct. 651, 193 L.Ed.2d 556 (2016)

a. The case names have been deleted from these citations to emphasize the publications. It should be kept in mind, however, that om these citations to emphasize the publications. It should be kept in mind, however, that om these citations to emphasize the publications. It should be kept in mind, however the name of a case is as important as the specific page numbers in the volumes in which it is found. If a citation is incorrect, the correct citation may be found in a publication’s index of case names. In addition to providing a check on errors in citations, the date of a case is important because the value of a recent case as an authority is likely to be greater than that of older cases from the same court.

136 A.D.3d 1094, 24 N.Y.S.3d 448 (2016)

___ U.S. ___, 136 S.Ct. 651, 193 L.Ed.2d 556 (2016)

243 Cal.App.4th 1366, 197 Cal.Rptr

136 A.D.3d 1094, 24 N.Y136 A.D.3d 1094, 24 N.Y

STATE COURTS

FEDERAL COURTS

N.WN.W.N.W is the abbreviation for the publication of state court decisions rendered in the North Western Reporter North Western Reporter North W of West’s National Reporter System. est’s National Reporter System. est’ 2d indicates that this case was included in the 2d indicates that this case was included in the 2d Second Series of that Second Series of that Second Series reporter.

Neb. is an abbreviation for Nebraska Reports, Nebraska’s of Nebraska’s of Nebraska’ ficial rs official rs of eports of the decisions of its highest court, the Nebraska Supreme Court.

Cal.RptrCal.Rptr.Cal.Rptr is the abbreviation for the unofficial reviation for the unofficial reviation for the unof eports—titled California Reporter—California Reporter—California Reporter of the decisions of California courts.

N.Y.S. is the abbreviation for the unofficial reviation for the unofficial reviation for the unof eports—titled New YoNew YoNew Y rk Supplement—of the decisions of New Yt—of the decisions of New Yt ork courts.—of the decisions of New York courts.—of the decisions of New Y

A.D. is the abbreviation for the New York Appellate Division ReportsNew York Appellate Division ReportsNew Y , which hears appeals from the New York Suprom the New York Suprom the New Y eme Court—the state’s general trial court. The New Yeme Court—the state’s general trial court. The New Yeme Court—the state’ ork Court s general trial court. The New York Court s general trial court. The New Y of Appeals is the state’s highest court, analogous to other states’ suprof Appeals is the state’s highest court, analogous to other states’ suprof Appeals is the state’ eme courts.

Ga.App. is the abbreviation for Georgia Appeals Reports, Georgia’s of Georgia’s of Georgia’ ficial rs official rs of eports of the decisions of its court of appeals.

L.Ed. is an abbreviation for Lawyers’ Edition of the Supreme Court Reports, an unofficial edition of decisions of the , an unofficial edition of decisions of the , an unof United States Supreme Court.

S.Ct. is the abbreviation for West’s unofest’s unofest’ ficial rs unofficial rs unof eports—titled Supreme Court Reporter—of decisions of the United States SuprCourt Reporter—of decisions of the United States SuprCourt Reporter eme Court.

U.S. is the abbreviation for United States Reports, the official edition of the , the official edition of the , the of decisions of the United States Supreme Court. The blank lines in this citation (or any other citation) indicate that the appropriate volume of the case reporter has not yet been published and no page number is available.

Continued

18 UNIT ONE The Foundations

EXHIBIT 1–5 How to Read Citations—Continued

809 F.3d 376 (7th Cir809 F.3d 376 (7th Cir809 F . 2016) .3d 376 (7th Cir. 2016) .3d 376 (7th Cir

___ F.Supp.3d ___ (E.D.Cal. 2016) ___ F.Supp.3d ___ (E.D.Cal. 2016) ___ F

18 U.S.C. Section 1961(1)(A)

UCC 2–206(1)(b)

Restatement (Third) of TRestatement (Third) of TRestatement (Thir orts, d) of Torts, d) of T Section 6

17 C.F.R. Section 230.50517 C.F.R. Section 230.50517 C.F

.3d 376 (7th Cir

18 U.S.C. Section 1961(1)(A)

2016 WL 66334

b. Many court decisions that are not yet published or that are not intended for publication can be accessed through Westlaw, an online legal database.

FEDERAL COURTS (Continued)

WESTLAW® CITATIONSb

STATUTORY AND OTHER CITATIONS

7th Cir7th Cir.7th Cir is an abbreviation denoting that this case was decided in the U.S. Court of Appeals for the Seventh Circuit.

E.D.Cal. is an abbreviation indicating that the U.S. District Court for the Eastern District of California decided this case.

U.S.C. denotes United States Code, the codification of United States Statutes at Large. The number 18 refers to the statute’s U.S.C. title numberefers to the statute’s U.S.C. title numberefers to the statute’ and 1961 to its section number within that title. The number 1 in parentheses refers to a subsection within the section, and the letter A in parentheses to a subsection within the subsection.

UCC is an abbrUCC is an abbrUCC eviation for Uniform Commercial Code. The first number 2 is a reference to an article of the UCC, and 206 to a section within that article. The number 1 in parentheses refers to a subsection within the section, and the letter b in parentheses to a subsection within the subsection.

Restatement (Third) of TortsRestatement (Third) of TortsRestatement (Third) of T rorts rorts efers to the third edition of the American Law Institute’s Law Institute’s Law Institute’ Restatement of the Law of TortsRestatement of the Law of TortsRestatement of the Law of T . The number 6 refers to a specific section.

C.F.R.C.F.R.C.F is an abbreviation for Code of Federal Regulations, a compilation of federal administrative regulations. The number 17 designates the regulation’s egulation’s egulation’ title number, and 230.505 designates a specific section within that title.title number, and 230.505 designates a specific section within that title.title number

WL is an abbreviation for Westlaw. The number 2016 is the year of the document that can be found with this citation in the Westlaw database. The number 66334 is a number assigned to a specific document. A higher number indicates that a document was added to the Westlaw database later in the year.

CHAPTER 1 Law and Legal Reasoning 19

Federal Court Decisions Federal district (trial) court decisions are published unofficially in the Federal Supple- ment (F.Supp. or F.Supp.2d), and opinions from the cirment (F.Supp. or F.Supp.2d), and opinions from the cirment – cuit courts of appeals (reviewing courts) are reported unofficially in the Federal Reporter (F., F.2d, or F.3d). Federal Reporter (F., F.2d, or F.3d). Federal Reporter Cases concerning federal bankruptcy law are published unofficially in the Bankruptcy Reporter (Bankr. or B.R.).Bankruptcy Reporter (Bankr. or B.R.).Bankruptcy Reporter

The official edition of the United States Supreme Court decisions is the United States Reports (U.S.), which is pubUnited States Reports (U.S.), which is pubUnited States Reports – lished by the federal government. Unofficial editions of Supreme Court cases include the Supreme Court Reporter (S.Ct.) and the Lawyers’ Edition of the Supreme Court Reports (L.Ed. or L.Ed.2d). Sample citations for federal court deci- sions are also listed and explained in Exhibit 1–5.

Unpublished Opinions Many court opinions that are not yet published or that are not intended for publi- cation can be accessed through Thomson Reuters West- law® (abbreviated in citations as “WL”), an online legal database. When no citation to a published reporter is available for cases cited in this text, we give the WL cita- tion (such as 2016 WL 145734, which means it was case number 145734 decided in the year 2016). In addition, federal appellate court decisions that are designated as unpublished may appear in the Federal Appendix (Fed.Federal Appendix (Fed.Federal Appendix Appx.) of the National Reporter System.

Old Case Law On a few occasions, this text cites opin- ions from old, classic cases dating to the nineteenth cen- tury or earlier. Some of these are from the English courts. The citations to these cases may not conform to the descriptions just presented because the reporters in which they were originally published were often known by the names of the persons who compiled the reporters.

1–7 How to Read and Understand Case Law

The decisions made by the courts establish the boundar- ies of the law as it applies to almost all business relation- ships. It thus is essential that businesspersons know how to read and understand case law.

The cases that we present in this text have been con- densed from the full text of the courts’ opinions and are presented in a special format. In approximately two-thirds of the cases (including the cases designated as Classic and Classic and Classic Spotlight), we have summarized the backSpotlight), we have summarized the backSpotlight – ground and facts, as well as the court’s decision and rem- edy, in our own words. In those cases, we have included only selected excerpts from the court’s opinion (“In the

Language of the Court”). In the remaining one-third of the cases (labeled “Case Analysis”), we have provided a longer excerpt from the court’s opinion without summa- rizing the background and facts or decision and remedy.

The following sections provide useful insights into how to read and understand case law.

1–7a Case Titles and Terminology The title of a case, such as Adams v. Jones, indicates the names of the parties to the lawsuit. The v. in the case title stands for versus, which means “against.” In the trial court, Adams was the plaintiff—the person who filed the suit. Jones was the defendant.

If the case is appealed, however, the appellate court will sometimes place the name of the party appealing the decision first, so the case may be called Jones v. Adams if Jones appealed. Because some appellate courts retain the trial court order of names, it is often impossible to distinguish the plaintiff from the defendant in the title of a reported appellate court decision. You must carefully read the facts of each case to identify the parties.

The following terms, phrases, and abbreviations are frequently encountered in court opinions and legal publications.

Parties to Lawsuits The party initiating a lawsuit is referred to as the plaintiff or plaintiff or plaintiff petitioner, depending on the petitioner, depending on the petitioner nature of the action. The party against whom a lawsuit is brought is the defendant or defendant or defendant respondent. Lawsuits frerespondent. Lawsuits frerespondent – quently involve more than one plaintiff and/or defendant.

When a case is appealed from the original court or jurisdiction to another court or jurisdiction, the party appealing the case is called the appellant. The appellee is the party against whom the appeal is taken. (In some appellate courts, the party appealing a case is referred to as the petitioner, and the party against whom the suit is brought or appealed is called the respondent.)

Judges and Justices The terms judge and judge and judge justice are justice are justice usually synonymous and represent two designations given to judges in various courts. All members of the United States Supreme Court, for instance, are referred to as justices. Justice is the formal title often given to judges of appellate courts, although this is not always true. In New York, a justice is a judge of the trial court (called the Supreme Court), and a member of the Court of Appeals (the state’s highest court) is called a judge.

The term justice is commonly abbreviated to J., and justice is commonly abbreviated to J., and justice justices, to JJ. A United States Supreme Court case might refer to Justice Sotomayor as Sotomayor, J., or to Chief Justice Roberts as Roberts, C.J.

20 UNIT ONE The Foundations

Decisions and Opinions Most decisions reached by reviewing, or appellate, courts are explained in written opinions. The opinion contains the court’s reasons for its decision, the rules of law that apply, and the judgment. You may encounter several types of opinions as you read appellate cases, including the following: • When all the judges (or justices) agree, a unanimous

opinion is written for the entire court. • When there is not unanimous agreement, a majority

opinion is generally written. It outlines the views of the majority of the judges deciding the case.

• A judge who agrees (concurs) with the majority opin- ion as to the result but not as to the legal reasoning often writes a concurring opinion. In it, the judge sets out the reasoning that he or she considers correct.

• A dissenting opinion presents the views of one or more judges who disagree with the majority view.

• Sometimes, no single position is fully supported by a majority of the judges deciding a case. In this situ- ation, we may have a plurality opinion. This is the opinion that has the support of the largest number of judges, but the group in agreement is less than a majority.

• Finally, a court occasionally issues a per curiam opin- ion (per curiamion (per curiamion ( is Latin for “of the court”), which does not indicate which judge wrote the opinion.

1–7b Sample Court Case To illustrate the various elements contained in a court opinion, we present an annotated court opinion in Exhibit 1–6. The opinion is from an actual case that the United States Court of Appeals for the Eleventh Circuit decided in 2016.

Background of the Case In December 1955, on a bus in Montgomery, Alabama, Rosa Parks refused to give up her seat to a white man in violation of the city’s seg- regation law. This “courageous act” sparked the modern civil rights movement. Parks’s role in “the most signifi- cant social movement in the history of the United States” has been chronicled in books and movies, and featured on mementoes, some of which are offered for sale by

Target Corp. The Rosa and Raymond Parks Institute for Self Development is a Michigan firm that owns the right to use Parks’s name and likeness for commercial pur- poses. The Institute filed a suit in a federal district court against Target, alleging misappropriation in violation of the Institute’s right of publicity. The court dismissed the complaint. The Institute appealed to the U.S. Court of Appeals for the Eleventh Circuit, arguing that Target’s sales of books, movies, and other items that depict or dis- cuss Rosa Parks and the modern civil rights movement violated Michigan law.

Editorial Practice You will note that triple asterisks (* * *) and quadruple asterisks (* * * *) frequently appear in the opinion. The triple asterisks indicate that we have deleted a few words or sentences from the opinion for the sake of readability or brevity. Quadruple asterisks mean that an entire paragraph (or more) has been omitted.

Additionally, when the opinion cites another case or legal source, the citation to the case or source has been omitted, again for the sake of readability and brevity. These editorial practices are continued in the other court opinions presented in this book. In addition, whenever we present a court opinion that includes a term or phrase that may not be readily understandable, a bracketed defi- nition or paraphrase has been added.

Briefing Cases Knowing how to read and understand court opinions and the legal reasoning used by the courts is an essential step in undertaking accurate legal research. A further step is “briefing,” or summarizing, the case.

Legal researchers routinely brief cases by reducing the texts of the opinions to their essential elements. Gener- ally, when you brief a case, you first summarize the back- ground and facts of the case, as the authors have done for most of the cases presented in this text. You then indicate the issue (or issues) before the court. An important ele- ment in the case brief is, of course, the court’s decision on the issue and the legal reasoning used by the court in reaching that decision.

Detailed instructions on how to brief a case are given in Appendix A, which also includes a briefed version of the sample court case presented in Exhibit 1–6.

CHAPTER 1 Law and Legal Reasoning 21

EXHIBIT 1–6 A Sample Court Case

Rosa and Raymond Parks Institute for Self Development v. Target Corporation

United States Court of Appeals, Eleventh Circuit,

812 F.3d 824 (2016).

ROSENBAUM, Circuit Judge:ROSENBAUM, Circuit Judge:ROSENBAUM

* * * *

[Rosa] Parks’s courageous act inspired the Montgomery Bus Boycott and served Parks’s courageous act inspired the Montgomery Bus Boycott and served Parks’s courageous act

as the impetus for the modern Civil Rights Movement, transforming the nation.

In response to Parks’s arrest, for 381 days, 42,000 African–Americans boycotted

Montgomery buses, until the United States Supreme Court held the Montgomery

segregation law unconstitutional and ordered desegregation of the buses.

Parks’s refusal to cede ground in the face of continued injustice has made her

among the most revered heroines of our national story; her role in American his-

tory cannot be over-emphasized. Indeed, the United States Congress * * * has cred-

ited Parks with “igniting the most significant social movement in the history of the

United States.”

So it is not surprising that authors would write about Parks’s story and artists

would celebrate it with their works. The commemoration and dissemination of

Parks’s journey continues to entrench and embolden our pursuit of justice. And it is

in the general public interest to relentlessly preserve, spotlight, and recount the story

of Rosa Parks and the Civil Rights Movement—even when that interest allegedly

conflicts with an individual right of publicity.

The Rosa and Raymond Parks Institute for Self Development (the “Institute”) is a

Michigan * * * corporation that owns the name and likeness of the late Rosa Parks * * * .

The court divides the opinion into three sections. The first section summarizes the factual background of the case.

This line provides the name of the judge (or justice) who authored the court’s opinion.

This section contains the cita- tion—the name of the case, the name of the court that heard the case, the year of the deci- sion, and reporters in which the court’s opinion can be found.

A right of publicity is a person’s right of publicity is a person’s right of publicity right to the use of his or her name and likeness for a commer- cial purpose.

To cede is to yield or surrender.

The modern civil rights move- ment (1954–1964) included mass ment (1954–1964) included mass ment demonstrations in which partici- pants sought equality in public and private life at national, state, and local levels, as well as an end to state and local segregation and discrimination in schools, in the workplace and at the polls. The movement culminated in the enactment of two federal Civil Rights acts in 1957 and 1964.

An impetus is a stimulus or a spark.

In December 1955, on a bus in Montgomery, Alabama, Parks refused to give up her seat to a white man in violation of the city’s segregation law.

Continued

22 UNIT ONE The Foundations

EXHIBIT 1–6 A Sample Court Case—Continued

Target Corporation (“Target”), a national retail corporation headquartered in Min-

neapolis, Minnesota, operates more than 1,800 retail stores across the United States.

Target offered [for sale] seven books about Parks * * * , the * * * movie The Rosa

Parks Story, and a * * * plaque that included * * * a picture of Parks.

* * * *

* * * The Institute filed the underlying complaint in [a federal district court]. The

Institute alleged claims for * * * misappropriation * * * for Target’s sales of all items

using the name and likeness of Rosa Parks.

Generally, the Institute complained that * * * Target had unfairly and “without

the Institute’s prior knowledge, or consent, used Parks’s name, likeness, and image

to sell products * * * for Target’s own commercial advantage.” * * * The district court

dismissed the complaint, and this appeal followed.

II.

* * * In this case we apply * * * the substantive law of Michigan. substantive law of Michigan. substantive law

* * * *

Michigan’s common-law right of publicity is founded upon the interest of the

individual in the exclusive use of his own identity, in so far as it is represented by his

name or likeness, and in so far as the use may be of benefit to him or to others. This

* * * privacy right guards against the appropriation of the commercial value of a per-

son’s identity by using without consent the person’s name, likeness, or other indicia

of identity for the purpose of trade.

Privacy rights, however, are not absolute. * * * Individual rights must yield to the

qualified privilege to communicate on matters of public interest.

* * * *

* * * The privilege attaches to matters of general public interest and extends

to all communications made bona fide upon any subject matter where the party bona fide upon any subject matter where the party bona fide

Indicia is a synonym for indica- tions or signs.

The second major section of the opinion responds to the plain- tiff’s appeal.

Substantive law is law that Substantive law is law that Substantive law defines the rights and duties of persons with respect to each other. A federal court exercising jurisdiction based on diversity of citizenship—as in this case, where the two corporate parties are “citizens” of different states— applies the substantive law of the state in which the court sits (except in cases governed by federal law or the United States Constitution).

Misappropriation is the use of a person’s name or likeness without his or her consent for a commercial purpose. This is commonly referred to as a viola- tion of the individual’s right of publicity.

Qualified privilege gives some- one a limited right to act con- trary to another person’s right without the other person’s hav- ing legal recourse for the act.

In this context, bona fide means sincerely and honestly.

CHAPTER 1 Law and Legal Reasoning 23

EXHIBIT 1–6 A Sample Court Case—Continued

communicating has an interest or a [legal, moral, or social] duty to a person having

a corresponding interest or duty.

* * * *

Of course, it is beyond dispute that Rosa Parks is a figure of great historical

significance and the Civil Rights Movement a matter of legitimate and important

public interest. And it is uncontested that * * * the * * * books * * * and the movie are uncontested that * * * the * * * books * * * and the movie are uncontested

all bona fide works * * * discussing Parks and her role in the Civil Rights Movement.bona fide works * * * discussing Parks and her role in the Civil Rights Movement.bona fide

Similarly, the plaque depicts images and mentions dates and statements related

to Parks and the Civil Rights Movement, in an effort to convey a message concern-

ing Parks, her courage, and the results of her strength. Indeed, all of the works in

question communicate information, express opinions, recite grievances, and protest

claimed abuses on behalf of a movement whose existence and objectives continue to

be of the highest public interest and concern.

* * * *

* * * The Institute has not articulated any argument as to why Michigan’s quali-

fied privilege for matters of public concern would not apply to these works, in light

of the conspicuous historical importance of Rosa Parks. Nor can we conceive of any.

* * * Indeed, it is difficult to conceive of a discussion of the Civil Rights Move-

ment without reference to Parks and her role in it. And Michigan law does not make

discussion of these topics of public concern contingent on paying a fee. As a result,

[the] books, the movie, and the plaque find protection in Michigan’s qualified privi-

lege protecting matters of public interest.

[III.]

In short, the district court did not err in dismissing the Institute’s complaint. The

district court’s order is AFFIRMED. To affirm is to validate, to give legal force to.

Here, uncontested can mean uncontested can mean uncontested unchallenged or accepted, as well as evident or obvious.

In the third major section of the opinion, the court states its decision.

24 UNIT ONE The Foundations

Terms and Concepts administrative agency 4 administrative law 4 allege 10 appellant 19 appellee 19 binding authority 8 breach 6 case law 5 case on point 11 citation 14 civil law 14 common law 6 concurring opinion 20 constitutional law 4 court of equity 6 court of law 6 criminal law 14 cyberlaw 14 damages 6

defendant 6 defense 6 dissenting opinion 20 equitable maxims 6 executive agency 5 historical school 12 independent regulatory agency 5 jurisprudence 12 laches 6 law 2 legal positivism 12 legal realism 13 legal reasoning 10 liability 2 majority opinion 20 natural law 12 opinion 20 ordinance 4 persuasive authority 10

per curiam opinion 20 petitioner 6 plainti� 6 plurality opinion 20 precedent 7 procedural law 13 remedy 6 remedy at law 6 remedy in equity 6 reporter 8 respondent 6 sociological school 13 stare decisis 8stare decisis 8stare decisis statute of limitations 6 statutory law 4 substantive law 13 uniform law 4

Debate This . . . Under the doctrine of stare decisis, courts are obligated to follow the precedents established in their jurisdiction unless there is a compelling reason not to. Should U.S. courts continue to adhere to this common law principle, given that our government now regulates so many areas by statute?

Reviewing: Law and Legal Reasoning

Suppose that the California legislature passes a law that severely restricts carbon dioxide emissions from automobiles in that state. A group of automobile manufacturers files suit against the state of California to prevent the enforcement of the law. The automakers claim that a federal law already sets fuel economy standards nationwide and that fuel economy standards are essentially the same as carbon dioxide emission standards. According to the automobile manufacturers, it is unfair to allow California to impose more stringent regulations than those set by the federal law. Using the informa- tion presented in the chapter, answer the following questions. 1. Who are the parties (the plaintiffs and the defendant) in this lawsuit? 2. Are the plaintiffs seeking a legal remedy or an equitable remedy? 3. What is the primary source of the law that is at issue here? 4. Where would you look to find the relevant California and federal laws?

Issue Spotters 1. Under what circumstances might a judge rely on case law

to determine the intent and purpose of a statute? (See Sources of American Law.)

2. After World War II, several Nazis were convicted of “crimes against humanity” by an international court. Assuming that these convicted war criminals had not

disobeyed any law of their country and had merely been following their government’s orders, what law had they violated? Explain. (See Schools of Legal Thought.)

• Check your answers to the Issue Spotters against the answers provided in Appendix D at the end of this text.

CHAPTER 1 Law and Legal Reasoning 25

Business Scenarios 1–1. Binding versus Persuasive Authority. A county court in Illinois is deciding a case involving an issue that has never been addressed before in that state’s courts. The Iowa Supreme Court, however, recently decided a case involving a very similar fact pattern. Is the Illinois court obligated to follow the Iowa Supreme Court’s decision on the issue? If the United States Supreme Court had decided a similar case, would that decision be binding on the Illinois court? Explain. (See The Common Law Tradition.) 1–2. Sources of Law. This chapter discussed a number of sources of American law. Which source of law takes priority in the following situations, and why? (See Sources of American Law.)

(a) A federal statute conflicts with the U.S. Constitution. (b) A federal statute conflicts with a state constitutional

provision. (c) A state statute conflicts with the common law of that

state. (d) A state constitutional amendment conflicts with the U.S.

Constitution. 1–3. Stare Decisis. In this chapter, we stated that the doc- trine of stare decisis “became a cornerstone of the English and stare decisis “became a cornerstone of the English and stare decisis American judicial systems.” What does stare decisis mean, and stare decisis mean, and stare decisis why has this doctrine been so fundamental to the develop- ment of our legal tradition? (See The Common Law Tradition.)

Business Case Problems 1–4. Spotlight on AOL—Common Law. AOL, LLC,

mistakenly made public the personal informa- tion of 650,000 of its members. �e members �led a suit, alleging violations of California law. AOL asked the court to dismiss the suit on the

basis of a “forum-selection clause” in its member agreement that designates Virginia courts as the place where member disputes will be tried. Under a decision of the United States Supreme Court, a forum-selection clause is unenforceable “if enforcement would contravene a strong public policy of the forum in which suit is brought.” California courts have declared in other cases that the AOL clause contravenes a strong public policy. If the court applies the doctrine of stare decisis, will it dismiss the suit? Explain. [Doe 1 v. AOL LLC, Doe 1 v. AOL LLC, Doe 1 v. AOL LLC 552 F.3d 1077 (9th Cir. 2009)] (See �e Common Law Tradition.) 1–5. Business Case Problem with Sample Answer— Reading Citations. Assume that you want to read the entire

court opinion in the case of Equal Employment Opportunity Commission v. Autozone, Inc., 809 F.3d 916 (7th Cir. 2016). Refer to the subsection enti- tled “Finding Case Law” in this chapter, and then

explain speci�cally where you would �nd the court’s opinion. (See How to Find Primary Sources of Law.) • For a sample answer to Problem 1–5, go to Appendix E at

the end of this text.

1–6. A Question of Ethics—The Common Law Tradition. On July 5, 1884, Dudley, Stephens, and Brooks—

”all able-bodied English seamen”—and a teenage English boy were cast adrift in a lifeboat following a storm at sea. �ey had no water with them in the boat, and all they had for sustenance were two one-

pound tins of turnips. On July 24, Dudley proposed that one of the four in the lifeboat be sacri�ced to save the others. Stephens agreed with Dudley, but Brooks refused to consent—and the boy was never asked for his opinion. On July 25, Dudley killed the boy, and the three men then fed on the boy’s body and blood. Four days later, a passing vessel rescued the men. �ey were taken to England and tried for the murder of the boy. If the men had not fed on the boy’s body, they would probably have died of starvation within the four-day period. �e boy, who was in a much weaker condition, would likely have died before the rest. [Regina v. Dudcondition, would likely have died before the rest. [Regina v. Dudcondition, would likely have died before the rest. [ – ley and Stephens, 14 Q.B.D. (Queen’s Bench Division, Eng-. (Queen’s Bench Division, Eng-. (Queen’s Bench Division, Eng land) 273 (1884)] (See �e Common Law Tradition.) (a) The basic question in this case is whether the survivors

should be subject to penalties under English criminal law, given the men’s unusual circumstances. Were the defen- dants’ actions necessary but unethical? Explain your rea- soning. What ethical issues might be involved here?

(b) Should judges ever have the power to look beyond the written “letter of the law” in making their decisions? Why or why not?

Legal Reasoning Group Activity 1–7. Court Opinions. Read through the subsection in this chapter entitled “Decisions and Opinions.” (See How to Read and Understand Case Law.) (a) One group will explain the difference between a concur-

ring opinion and a majority opinion. (b) Another group will outline the difference between a con-

curring opinion and a dissenting opinion.

(c) A third group will explain why judges and justices write concurring and dissenting opinions, given that these opinions will not affect the outcome of the case at hand, which has already been decided by majority vote.

CHAPTER 2

2–1 The Judiciary’s Role in American Government

The body of American law includes the federal and state constitutions, statutes passed by legislative bod- ies, administrative law, and the case decisions and legal principles that form the common law. These laws would be meaningless, however, without the courts to interpret and apply them. The essential role of the judiciary— the courts—in the American governmental system is to interpret the laws and apply them to specific situations.

2–1a Judicial Review As the branch of government entrusted with interpreting the laws, the judiciary can decide, among other things, whether the laws or actions of the other two branches are constitutional. The process for making such a determina- tion is known as judicial review. The power of judicial review enables the judicial branch to act as a check on the other two branches of government, in line with the

system of checks and balances established by the U.S. Constitution.2

2–1b The Origins of Judicial Review in the United States

The power of judicial review is not mentioned in the U.S. Constitution (although many constitutional schol- ars believe that the founders intended the judiciary to have this power). The United States Supreme Court explicitly established this power in 1803 in the case Mar- bury v. Madison.3 In that decision, the Court stated, “It is emphatically the province [authority] and duty of the Judicial Department to say what the law is. . . . If two laws conflict with each other, the courts must decide

2. In a broad sense, judicial review occurs whenever a court “reviews” a case or legal proceeding—as when an appellate court reviews a lower court’s decision. When discussing the judiciary’s role in American government, however, the term judicial review refers to the power of the judiciary to judicial review refers to the power of the judiciary to judicial review decide whether the actions of the other two branches of government vio- late the U.S. Constitution.

3. 5 U.S. (1 Cranch) 137, 2 L.Ed. 60 (1803).

The United States has fifty-two court systems—one for each of the fifty states, one for the District Tthe fifty states, one for the District T of Columbia, and a federal system. Keep in mind that the federal courts are not superior to the state courts. They are simply an independent system of courts, which derives its authority from Article III, Section 2, of the U.S. Constitution. By the power given to it under the U.S. Constitution, Congress has extended the federal court system to U.S. territories such as Guam, Puerto Rico, and the Virgin Islands.1

1. In Guam and the Virgin Islands, territorial courts serve as both federal courts and state courts. In Puerto Rico, they serve only as federal courts.

As we shall see, the United States Supreme Court is the final control- ling voice over all of these fifty-two systems, at least when questions of federal law are involved. The Supreme Court’s decisions—whether on free speech and social media, health-care subsidies, environmental regulation, or same-sex marriage—represent the last word in the most controversial legal debates in our society. Never- theless, many of the legal issues that arise in our daily lives, such as the use of social media by courts, employ- ers, and law enforcement, have not yet come before the nation’s highest court. The lower courts usually resolve

such pressing matters, making these courts equally important in our legal system.

Although an understanding of our nation’s court systems is beneficial for anyone, it is particularly crucial for businesspersons, who will likely face a lawsuit at some time during their careers. Anyone involved in busi- ness should be familiar with the basic requirements that must be met before a party can bring a lawsuit before a particular court.

Courts and Alternative Dispute Resolution

CHAPTER 2 Courts and Alternative Dispute Resolution 27

on the operation of each. . . . [I]f both [a] law and the Constitution apply to a particular case, . . . the Court must determine which of these conflicting rules governs the case. This is of the very essence of judicial duty.” Since the Marbury v. Madison decision, the power of judicial review has remained unchallenged. Today, this power is exercised by both federal and state courts.

2–2 Basic Judicial Requirements Before a lawsuit can be brought before a court, certain requirements must be met. These requirements relate to jurisdiction, venue, and standing to sue. We examine each of these important concepts here.

2–2a Jurisdiction In Latin, juris means “law,” and juris means “law,” and juris diction means “to speak.” Thus, “the power to speak the law” is the literal meaning of the term jurisdiction. Before any court can hear a case, it must have jurisdiction over the person (or company) against whom the suit is brought (the defendant) or over the property involved in the suit. The court must also have jurisdiction over the subject matter of the dispute.

Jurisdiction over Persons or Property Generally, a particular court can exercise in personam jurisdiction (personal jurisdiction) over any person or business that resides in a certain geographic area. A state trial court, for instance, normally has jurisdictional authority over residents (including businesses) of a particular area of the state, such as a county or district. A state’s highest court (often called the state supreme court4) has jurisdictional authority over all residents within the state.

A court can also exercise jurisdiction over property that is located within its boundaries. This kind of juris- diction is known as in rem jurisdiction jurisdiction, or “jurisdiction over the thing.” ■ EXAMPLE 2.1 A dispute arises over A dispute arises over the ownership of a boat in dry dock in Fort Lauderdale, Florida. The boat is owned by an Ohio resident, over whom a Florida court normally cannot exercise personal jurisdiction. The other party to the dispute is a resident of Nebraska. In this situation, a lawsuit concerning the boat could be brought in a Florida state court on the basis of the court’s in rem jurisdiction. ■

4. As will be discussed shortly, a state’s highest court is often referred to as the state supreme court, but there are exceptions. For instance, in New York the supreme court is a trial court.

Long Arm Statutes and Minimum Contacts. Under the authority of a state long arm statute, a court can exer- cise personal jurisdiction over certain out-of-state defen- dants based on activities that took place within the state. Before a court can exercise jurisdiction, though, it must be demonstrated that the defendant had su�cient con- tacts, or minimum contacts, with the state to justify the jurisdiction.5

Generally, the minimum-contacts requirement means that the defendant must have sufficient connection to the state for the judge to conclude that it is fair for the state to exercise power over the defendant. For instance, if an out-of-state defendant caused an automobile accident within the state or breached a contract formed there, a court will usually find that minimum contacts exist to exercise jurisdiction over that defendant. Similarly, a state may exercise personal jurisdiction over a nonresident defendant that is sued for selling defective goods within the state.

■ CASE IN POINT 2.2 An Xbox game system caught fire in Bonnie Broquet’s home in Texas and caused sub- stantial personal injuries. Broquet filed a lawsuit in a Texas court against Ji-Haw Industrial Company, a non- resident company that made the Xbox components. Bro- quet alleged that Ji-Haw’s components were defective and had caused the fire. Ji-Haw argued that the Texas court lacked jurisdiction over it, but a state appellate court held that the Texas long arm statute authorized the exercise of jurisdiction over the out-of-state defendant.6 ■

Corporate Contacts. Because corporations are con- sidered legal persons, courts use the same principles to determine whether it is fair to exercise jurisdiction over a corporation. A corporation normally is subject to per- sonal jurisdiction in the state in which it is incorporated, has its principal o�ce, and/or is doing business.

Courts apply the minimum-contacts test to determine if they can exercise jurisdiction over out-of-state corpo- rations. The minimum-contacts requirement is usually met if the corporation advertises or sells its products within the state, or places its goods into the “stream of commerce” with the intent that the goods be sold in the commerce” with the intent that the goods be sold in the commerce” with the intent that the goods be sold in the commerce” with the intent that the goods be sold in the state. ■ EXAMPLE 2.3 A business is incorporated under A business is incorporated under the laws of Maine but has a branch office and manufac- turing plant in Georgia. The corporation also advertises and sells its products in Georgia. These activities would likely constitute sufficient contacts with the state of

5. The minimum-contacts standard was first established in International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945).

6. Ji-Haw Industrial Co. v. Broquet, 2008 WL 441822 (Tex.App.—San Ji-Haw Industrial Co. v. Broquet, 2008 WL 441822 (Tex.App.—San Ji-Haw Industrial Co. v. Broquet Antonio 2008).

28 UNIT ONE The Foundations

Georgia to allow a Georgia court to exercise jurisdiction over the corporation. ■

Some corporations do not sell or advertise their products in the general marketplace. Determining what constitutes minimum contacts in these situations can be more difficult. ■ CASE IN POINT 2.4 Independence Plating Corporation is a New Jersey corporation that provides metal-coating services. Its only office and all of its personnel are located in New Jersey, and it does not advertise out of state. Independence had a long-standing business relationship with Southern Prestige Industries, Inc., a North Carolina company. Eventually, Southern Prestige filed suit in North Carolina against Indepen- dence for defective workmanship. Independence argued that North Carolina did not have jurisdiction over it, but the court held that Independence had sufficient mini- mum contacts with the state to justify jurisdiction. The two parties had exchanged thirty-two separate purchase orders in a period of less than twelve months.7 ■

Jurisdiction over Subject Matter Subject-matter jurisdiction refers to the limitations on the types of cases a court can hear. Certain courts are empowered to hear certain kinds of disputes. In both the federal and the state court systems, there are courts of general (unlimited) jurisdiction and courts of limited jurisdiction.

A court of general jurisdiction can decide cases involv- ing a broad array of issues. An example of a court of gen- eral jurisdiction is a state trial court or a federal district court.

In contrast, a court of limited jurisdiction can hear only specific types of cases. An example of a state court of lim- ited jurisdiction is a probate court. Probate courts are state courts that handle only the disposition of a person’s assets and obligations after that person’s death, including issues relating to the custody and guardianship of chil- dren. An example of a federal court of limited subject- matter jurisdiction is a bankruptcy court. Bankruptcy courts handle only bankruptcy proceedings, which are governed by federal bankruptcy law.

A court’s jurisdiction over subject matter is usually defined in the statute or constitution that created the court. In both the federal and the state court systems, a court’s subject-matter jurisdiction can be limited by any of the following: 1. The subject of the lawsuit. 2. The sum in controversy.

7. Southern Prestige Industries, Inc. v. Independence Plating Corp., 690 S.E.2d 768 (N.C. 2010).

3. Whether the case involves a felony (a serious type of crime) or a misdemeanor (a less serious type of crime).

4. Whether the proceeding is a trial or an appeal.

Original and Appellate Jurisdiction The distinc- tion between courts of original jurisdiction and courts of appellate jurisdiction normally lies in whether the case is being heard for the first time. Courts having original jurisdiction are courts of the first instance, or trial courts. These are courts in which lawsuits begin, trials take place, and evidence is presented. In the federal court system, the district courts are trial courts. In the various state court district courts are trial courts. In the various state court district courts systems, the trial courts are known by various names, as will be discussed shortly.

The key point here is that any court having original jurisdiction normally serves as a trial court. Courts hav- ing appellate jurisdiction act as reviewing, or appellate, courts. In general, cases can be brought before appellate courts only on appeal from an order or a judgment of a trial court or other lower courts.

Jurisdiction of the Federal Courts Because the federal government is a government of limited powers, the jurisdiction of the federal courts is limited. Federal courts have subject-matter jurisdiction in two situations: when a federal question is involved and when there is diversity of citizenship.

Federal Questions. Article III of the U.S. Constitution establishes the boundaries of federal judicial power. Sec- tion 2 of Article III states that “the judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority.”

In effect, this clause means that whenever a plaintiff ’s cause of action is based, at least in part, on the U.S. Con- stitution, a treaty, or a federal law, a federal question arises. Any lawsuit involving a federal question, such as a person’s rights under the U.S. Constitution, can originate in a federal court. Note that in a case based on a federal question, a federal court will apply federal law.

Diversity of Citizenship. Federal district courts can also exercise original jurisdiction over cases involving diversity of citizenship. �e most common type of diversity juris- diction8 requires both of the following:both of the following:both

8. Diversity jurisdiction also exists in cases between (1) a foreign country and citizens of a state or of different states and (2) citizens of a state and citizens or subjects of a foreign country. Cases based on these types of diversity jurisdiction occur infrequently.

CHAPTER 2 Courts and Alternative Dispute Resolution 29

1. The plaintiff and defendant must be residents of dif-The plaintiff and defendant must be residents of dif-The plaintiff and defendant must be residents of dif ferent states.

2. The dollar amount in controversy must exceed $75,000.

For purposes of diversity jurisdiction, a corporation is a citizen of both the state in which it is incorporated and the state in which its principal place of business is located.

A case involving diversity of citizenship can be filed in the appropriate federal district court. (If the case starts in a state court, it can sometimes be transferred, or “removed,” to a federal court.) A large percentage of the cases filed in federal courts each year are based on diversity of citizenship. As noted before, a federal court will apply federal law in cases involving federal questions.

In a case based on diversity of citizenship, in contrast, a federal court will apply the relevant state law (which is often the law of the state in which the court sits).

The following case focused on whether diversity jurisdiction existed. A boat owner was severely burned when his boat exploded after being overfilled with fuel at a marina in the U.S. Virgin Islands. The owner filed a suit in a federal district court against the marina and sought a jury trial. The defendant argued that a plain- tiff in an admiralty, or maritime, case (a case based on something that happened at sea) does not have a right to a jury trial unless the court has diversity jurisdiction. The defendant claimed that because both parties were citizens of the Virgin Islands, the court had no such jurisdiction.

In the Language of the Court SMITH, Circuit Judge.SMITH, Circuit Judge.SMITH

* * * * Kelley Mala is a citizen of the United

States Virgin Islands. * * * He went for a cruise in his powerboat near St. Thomas, Virgin Islands. When his boat ran low on gas, he entered Crown Bay Marina to refuel. Mala tied the boat to one of Crown Bay’s eight fueling stations and began filling his tank with an automatic gas pump. Before walking to the cash register to buy oil, Mala asked a Crown Bay attendant to watch his boat.

By the time Mala returned, the boat’s tank was overflowing and fuel was spilling into the boat and into the water. The attendant manually shut off the pump and acknowledged that the pump had been malfunctioning in recent days. Mala began cleaning up the fuel, and at some point, the attendant provided soap and water. Mala eventu- ally departed the marina, but as he did so, the engine caught fire and exploded. Mala was thrown into the water and was severely burned. His boat was unsalvageable.

* * * Mala sued Crown Bay in the District Court of the Virgin Islands.

Mala’s * * * complaint asserted * * * that Crown Bay negligently maintained its gas pump. [Negligence is the failure to exercise the standard of care that a rea- sonable person would exercise in similar circumstances. Negligence can form the basis for a legal claim.] The complaint also alleged that the District Court had admiralty and diversity jurisdiction over the case, and it requested a jury trial.

* * * * * * * Crown Bay filed a motion

to strike Mala’s jury demand. Crown Bay argued that plaintiffs generally do not have a jury-trial right in admiralty cases—only when the court also has diversity jurisdiction. And Crown Bay asserted that the parties were not diverse in this case * * * . In response to this motion, the District Court ruled that both Mala and Crown Bay were citizens of the Virgin Islands. The court therefore struck Mala’s jury demand, but neverthe- less opted to empanel an advisory jury. [The court could accept or reject the advisory jury’s verdict.]

* * * At the end of the trial, the advi- sory jury returned a verdict of $460,000 for Mala—$400,000 for pain and suf-for Mala—$400,000 for pain and suf-for Mala—$400,000 for pain and suf fering and $60,000 in compensatory

damages. It con- cluded that Mala was 25 percent at fault and that Crown Bay was 75 percent at fault. The District Court ultimately rejected the verdict and entered judg- ment for Crown Bay.

* * * * This appeal followed. * * * * Mala * * * argues that the District

Court improperly refused to conduct a jury trial. This claim ultimately depends on whether the District Court had diver- sity jurisdiction.

The Seventh Amendment [to the U.S. Constitution] creates a right to civil jury trials in federal court: “In Suits at common law * * * the right of trial by jury shall be preserved.” Admiralty suits are not “Suits at common law,” which means that when a district court has only admiralty jurisdiction the plaintiff does not have a jury-trial right. But [a federal statute] allows plaintiffs to pursue state claims in admiralty cases as long as the district court also has diversity jurisdic- tion. In such cases [the statute] preserves whatever jury-trial right exists with respect to the underlying state claims.

Case Analysis 2.1 Mala v. Crown Bay Marina, Inc. United States Court of Appeals, Third Circuit, 704 F.3d 239 (2013).

30 UNIT ONE The Foundations

Legal Reasoning Questions

1. What is “diversity of citizenship”? 2. How does the presence—or lack—of diversity of citizenship affect a lawsuit? 3. What did the court conclude with respect to the parties’ diversity of citizenship in this case?

Mala argues that the District Court had both admiralty and diversity juris- diction. As a preliminary matter, the court certainly had admiralty jurisdic- tion. The alleged tort occurred on navigable water and bore a substantial connection to maritime activity.

The grounds for diversity jurisdiction are less certain. District courts have juris- diction only if the parties are completely diverse. This means that no plaintiff may have the same state or territorial citizen- ship as any defendant. The parties agree that Mala was a citizen of the Virgin Islands. [Emphasis added.]

Unfortunately for Mala, the District Court concluded that Crown Bay also

was a citizen of the Virgin Islands. Mala rejects this conclusion.

Mala bears the burden of proving that the District Court had diversity jurisdiction. Mala failed to meet that burden because he did not offer evidence that Crown Bay was anything other than a citizen of the Virgin Islands. Mala con- tends that Crown Bay admitted to being a citizen of Florida, but Crown Bay actu- ally denied Mala’s allegation.

Absent evidence that the parties were diverse, we are left with Mala’s allegations. Allegations are insufficient at trial. And they are especially insufficient on appeal, where we review the District on appeal, where we review the District on appeal Court’s underlying factual findings for

clear error. Under this standard, we will not reverse unless we are left with the definite and firm conviction that Crown Bay was in fact a citizen of Florida. Mala has not presented any credible evidence that Crown Bay was a citizen of Florida—much less evidence that would leave us with the requisite firm convic- tion. [Emphasis added.]

* * * Accordingly, the parties were not diverse and Mala does not have a jury- trial right.

* * * * * * * For these reasons we will affirm

the District Court’s judgment.

Case 2.1 Continued

Exclusive versus Concurrent Jurisdiction When both federal and state courts have the power to hear a case, as is true in lawsuits involving diversity of citizen- ship, concurrent jurisdiction exists. When cases can be tried only in federal courts or only in state courts, exclu- sive jurisdiction exists.

Federal courts have exclusive jurisdiction in cases involv- ing federal crimes, bankruptcy, most patent and copyright claims, suits against the United States, and some areas of admiralty law. State courts also have exclusive jurisdiction over certain subjects—for instance, divorce and adoption.

When concurrent jurisdiction exists, a party may choose to bring a suit in either a federal court or a state court. Many factors can affect a party’s decision to liti- gate in a federal versus a state court. Examples include the availability of different remedies, the distance to the respective courthouses, or the experience or reputation of a particular judge.

For instance, if the dispute involves a trade secret, a party might conclude that a federal court—which has exclusive jurisdiction over copyrights and patents— would have more expertise in the matter. In contrast, a plaintiff might choose to litigate in a state court if the court has a reputation for awarding substantial amounts of damages or if the judge is perceived as being

pro-plaintiff. The concepts of exclusive and concurrent jurisdiction are illustrated in Exhibit 2–1.

Jurisdiction in Cyberspace The Internet’s capacity to bypass political and geographic boundaries undercuts the traditional basis on which courts assert personal juris- diction. As discussed, for a court to compel a defendant to come before it, the defendant must have a sufficient connection—that is, minimum contacts—with the state. When a defendant’s only contacts with the state are through a Web site, however, it can be difficult to deter- mine whether these contacts are sufficient for a court to exercise jurisdiction.

The “Sliding-Scale” Standard. �e courts have developed a “sliding-scale” standard to determine when they can exer- cise personal jurisdiction over an out-of-state defendant based on the defendant’s Web activities. �e sliding-scale standard identi�es three types of Internet business contacts and outlines the following rules for jurisdiction: 1. When the defendant conducts substantial business

over the Internet (such as contracts and sales), juris- diction is proper.

2. When there is some interactivity through a Web site, jurisdiction may be proper, depending on the

CHAPTER 2 Courts and Alternative Dispute Resolution 31

circumstances. Even a single contact can satisfy the minimum-contacts requirement in certain situations.

3. When a defendant merely engages in passive adver- tising on the Web, jurisdiction is never proper.9 An Internet communication is typically considered pas- sive if people have to voluntarily access it to read the message and active if it is sent to specific individuals. ■ CASE IN POINT 2.5 Samantha Guffey lives in

Oklahoma. She placed a winning bid on eBay for a used 2009 Volvo XC90 from Motorcars of Nashville, Inc. (MNI), a Tennessee corporation. Before she won the auction, she spoke with Otto Ostonakulov at the deal- ership. Later, Ostonakulov sent the necessary paper- work to Guffey in Oklahoma. She signed and returned it by mail, and he arranged for MNI to ship the Volvo to Oklahoma.

When the car was delivered to Guffey, she discov- ered it was not in the condition advertised. She filed a lawsuit in Oklahoma against MNI and Ostonakulov, alleging fraud and a violation of state consumer protec- tion laws. Guffey’s complaint alleged that the defen- dants were active “power sellers” on eBay, averaging twelve to twenty-five cars for sale every day. The sellers claimed that the Oklahoma court lacked jurisdiction over them, and a trial court dismissed the complaint. Guffey appealed. The reviewing court found that Okla- homa had jurisdiction because the sellers’ “use of eBay to make multiple sales is systemic and appears to be a

9. For a leading case on this issue, see Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F.Supp. 1119 (W.D.Pa. 1997).

core part of their business.” They had negotiated with Guffey directly to sell her a vehicle in Oklahoma and had regularly used eBay to sell vehicles to remote parties in the past.10 ■

International Jurisdictional Issues. Because the Inter- net is international in scope, it obviously raises interna- tional jurisdictional issues. �e world’s courts seem to be developing a standard that echoes the requirement of minimum contacts applied by the U.S. courts.

Most courts are indicating that minimum contacts— doing business within the jurisdiction, for instance— are enough to compel a defendant to appear and that a physical presence in the country is not necessary. The effect of this standard is that a business firm has to comply with the laws in any jurisdiction in which it targets customers for its products. This situation is complicated by the fact that many countries’ laws on particular issues—free speech, for instance—are very different from U.S. laws.

The following case illustrates how federal courts apply a sliding-scale standard to determine if they can exercise jurisdiction over a foreign defendant whose only contact with the United States is through a Web site.

10. Guffey v. Ostonakulov, 2014 OK 6, 321 P.3d 971 (Ok.Sup. 2014). Note that a single sale on eBay does not necessarily form the basis for jurisdic- tion. Jurisdiction depends on whether the seller regularly uses eBay as a means for doing business with remote buyers. See Hinners v. Robey, 336 S.W.3d 891 (Ky.Sup. 2008).

Exclusive Federal Jurisdiction

(cases involving federal crimes, federal antitrust law, bankruptcyfederal antitrust law, bankruptcyfederal antitrust law ,, bankruptcy,, bankruptcy patents, copyrights, trademarks, suits against the United States,

some areas of admiralty law, and certain other matters specified

in federal statutes)

Exclusive State Jurisdiction

(cases involving all matters not subject to federal jurisdiction— for example, divorce and adoption

cases)

Concurrent Jurisdiction

(most cases involving federal questions, diversity-of-

citizenship cases)

EXHIBIT 2–1 Exclusive and Concurrent Jurisdiction

32 UNIT ONE The Foundations

Company Profile Gucci America, Inc., a New York corporation headquartered in New York City, is part of Gucci Group, a global fashion firm with offices in China, France, Great Britain, Italy, and Japan. Gucci makes and sells high-quality luxury goods, including footwear, belts, sunglasses, handbags, wallets, jewelry, fragrances, and children’s clothing. In connection with its products, Gucci uses twenty-one federally regis- tered trademarks. Gucci also operates a number of boutiques, some of which are located in California.

Background and Facts Wang Huoqing, a resident of the People’s Republic of China, operates numerous Web sites. When Gucci discovered that Wang Huoqing’s Web sites offered for sale coun- terfeit goods—products bearing Gucci’s trademarks but not genuine Gucci articles—it hired a private investigator in San Jose, California, to buy goods from the Web sites. The investigator purchased a wallet that was labeled Gucci but was counterfeit.

Gucci filed a trademark infringement lawsuit against Wang Huoqing in a federal district court in California seeking damages and an injunction to prevent further infringement. Wang Huoqing was notified of the lawsuit via e-mail but did not appear in court. Gucci asked the court to enter a default judgment—that is, a judgment entered when the defendant fails to appear. First, however, the court had to determine whether it had personal jurisdiction over Wang Huoqing based on the Internet sales.

In the Language of the Court Joseph C. SPERO, United States Magistrate Judge.

* * * * * * * Under California’s long-arm statute, federal courts in California may exercise jurisdiction to the

extent permitted by the Due Process Clause of the Constitution. The Due Process Clause allows federal courts to exercise jurisdiction where * * * the defendant has had sufficient minimum contacts with the forum to subject him or her to the specific jurisdiction of the court. The courts apply a three-part test to determine whether specific jurisdiction exists:

(1) The nonresident defendant must do some act or consummate some transaction with the forum or perform some act by which he purposefully avails himself of the privilege of conduct- ing activities in the forum, thereby invoking the benefits and protections of its laws; (2) the claim must be one which arises out of or results from the defendant’s forum-related activities; and (3) exercise of jurisdiction must be reasonable.

* * * * In order to satisfy the first prong of the test for specific jurisdiction, a defendant must have either

purposefully availed itself of the privilege of conducting business activities within the forum or purpose- fully directed activities toward the forum. Purposeful availment typically consists of action taking place in the forum that invokes the benefits and protections of the laws of the forum, such as executing or performing a contract within the forum. To show purposeful availment, a plaintiff must show that the defendant “engage[d] in some form of affirmative conduct allowing or promoting the transaction of business within the forum state.” [Emphasis added.]

“In the Internet context, the Ninth Circuit utilizes a sliding scale analysis under which ‘passive’ websites do not create sufficient contacts to establish purposeful availment, whereas interactive websites may create sufficient contacts, depending on how interactive the website is.” * * * Personal jurisdiction is appropriate where an entity is conducting business over the Internet and has offered for sale and sold its prod-appropriate where an entity is conducting business over the Internet and has offered for sale and sold its prod-appropriate where an entity is conducting business over the Internet and has offered for sale and sold its prod ucts to forum [California] residents. [Emphasis added.]

Here, the allegations and evidence presented by Plaintiffs in support of the Motion are sufficient to show purposeful availment on the part of Defendant Wang Huoqing. Plaintiffs have alleged that Defen- dant operates “fully interactive Internet websites operating under the Subject Domain Names” and have presented evidence in the form of copies of web pages showing that the websites are, in fact, interactive.

Spotlight on Gucci

Case 2.2 Gucci America, Inc. v. Wang HuoqingCase 2.2 Gucci America, Inc. v. Wang HuoqingCase 2.2 Gucci America, Inc. v. Wang Huoqing United States District Court, Northern District of California, 2011 WL 30972 (2011).United States District Court, Northern District of California, 2011 WL 30972 (2011).United States District Court, Northern District of California, 2011 WL 30972 (2011).

CHAPTER 2 Courts and Alternative Dispute Resolution 33

* * * Additionally, Plaintiffs allege Defendant is conducting counterfeiting and infringing activities within this Judicial District and has advertised and sold his counterfeit goods in the State of California. * * * Plaintiffs have also presented evidence of one actual sale within this district, made by investigator Robert Holmes from the website bag2do.cn.* * * Finally, Plaintiffs have presented evidence that Defendant Wang Huoqing owns or controls the twenty-eight websites listed in the Motion for Default Judgment. * * * Such commercial activity in the forum amounts to purposeful availment of the privilege of conducting activities within the forum, thus invoking the benefits and protections of its laws. Accordingly, the Court concludes that Defendant’s contacts with California are sufficient to show purposeful availment.

Decision and Remedy The U.S. District Court for the Northern District of California held that it had personal jurisdiction over the foreign defendant, Wang Huoqing. The court entered a default judgment against Wang Huoqing and granted Gucci an injunction.

Critical Thinking • What If the Facts Were Different? Suppose that Gucci had not presented evidence that Wang Huoqing

had made one actual sale through his Web site to a resident of the court’s district (the private investigator). Would the court still have found that it had personal jurisdiction over Wang Huoqing? Why or why not?

• Legal Environment Is it relevant to the analysis of jurisdiction that Gucci America’s principal place of business is in New York rather than California? Explain.

Case 2.2 Continued

Minimum Contacts and Smartphones. �e widespread use of cellular phones, particularly smartphones, also complicates the determination of personal jurisdiction. People use their smartphones while traveling to make purchases, negotiate business deals, enter contracts, and download applications (apps). If a person traveling in another state (or nation) uses a smartphone to form a contract, does that forum have jurisdiction over the per- son? Is the party that creates an app subject to jurisdic- tion anywhere the app is downloaded or used? Because an app di�ers from a Web page, what degree of interactivity is required for apps to confer jurisdiction in the sliding- scale analysis? �e courts will be addressing these ques- tions in coming years and adapting traditional notions of jurisdiction to ever-changing technology.

Concept Summary 2.1 reviews the various types of jurisdiction, including jurisdiction in cyberspace.

2–2b Venue Jurisdiction has to do with whether a court has author- ity to hear a case involving specific persons, property, or subject matter. Venue11 is concerned with the most appropriate location for a trial. For instance, two state courts (or two federal courts) may have the authority to exercise jurisdiction over a case. Nonetheless, it may be

11. Pronounced ven-yoo.

more appropriate or convenient to hear the case in one court than in the other.

The concept of venue reflects the policy that a court trying a case should be in the geographic neighborhood (usually the county) where the incident occurred or where the parties reside. Venue in a civil case typically is where the defendant resides or does business, whereas venue in a criminal case normally is where the crime occurred.

In some cases, pretrial publicity or other factors may require a change of venue to another community, espe- cially in criminal cases in which the defendant’s right to a fair and impartial jury has been impaired. Note, though, that venue has lost some significance in today’s world because of the Internet and 24/7 news reporting. Courts now rarely grant requests for a change of venue. Because everyone has instant access to all information about a pur- ported crime, courts reason that no community is more or less informed or prejudiced for or against a defendant.

2–2c Standing to Sue Before a party can bring a lawsuit to court, that party must have standing to sue, or a sufficient stake in a matter to justify seeking relief through the court system. Standing means that the party that filed the action in court has a legally protected interest at stake in the liti- gation. At times, a person can have standing to sue on behalf of another person, such as a minor (child) or a mentally incompetent person.

34 UNIT ONE The Foundations

Limits the court’s jurisdictional authority to particular types of cases.

Jurisdiction

●

● Is located in the court’s territorial boundaries. Qualifies under state long arm statutes. Is a corporation doing business within the state. Advertises, sells, or places goods into commerce within the state.

Concept Summary 2.1

Personal

●

● General jurisdiction—Exists when a court can hear cases involving aGeneral jurisdiction—Exists when a court can hear cases involving aGeneral jurisdiction broad array of issues. Limited jurisdiction—Exists when a court is limited to a specific subjectLimited jurisdiction—Exists when a court is limited to a specific subjectLimited jurisdiction matter, such as probate or divorce.

Subject Matter

●

● When the plaintiff’s cause of action involves a federal question (is based at least in part on the U.S. Constitution, a treaty, or a federal law). In cases between citizens of different states (or cases involving U.S. citizens and foreign countries or their citizens) when the amount in controversy exceeds $75,000 (diversity-of-citizenship jurisdiction).

Federal

● Exists when the property that is subject to a lawsuit is located within the court’s territorial boundaries.

Property

● Exists with courts that have the authority to hear a case for the first time (trial courts, district courts).

Original

● Exists with courts of appeal and review. Generally, appellate courts do not have original jurisdiction.

Appellate

● Exists when both federal and state courts have authority to hear the same case.ConcurrentConcurrentConcurr

● Exists when only state courts or only federal courts have authority to hear a case.Exclusive

● The courts have developed a sliding-scale standard to use in determining when jurisdiction over a Web site owner or operator in another state is proper.

Cyberspace

Exists when a defendant:

A federal court can exercise jurisdiction:

CHAPTER 2 Courts and Alternative Dispute Resolution 35

Standing can be broken down into three elements: 1. Harm. The party bringing the action must have

suffered harm—an invasion of a legally protected interest—or must face imminent harm. The con- troversy must be real and substantial rather than hypothetical.

2. Causation. There must be a causal connection between the conduct complained of and the injury.

3. Remedy. It must be likely, as opposed to merely specu- lative, that a favorable court decision will remedy the injury suffered. ■ CASE IN POINT 2.6 Harold Wagner obtained a Harold Wagner obtained a

loan through M.S.T. Mortgage Group to buy a house in Texas. After the sale, M.S.T. transferred its interest in the loan to another lender, which, in turn, assigned it to another lender (a common practice in the mortgage industry). Eventually, when Wagner failed to make the loan payments, CitiMortgage, Inc., notified him that it was going to foreclose on the property and sell the house.

Wagner filed a lawsuit, claiming that the lenders had improperly assigned the mortgage loan. In 2014, a fed- eral district court ruled that Wagner lacked standing to contest the assignment. Under Texas law, only the parties directly involved in an assignment can challenge its valid- ity. In this case, the assignment was between two lenders and did not directly involve Wagner.12 ■

12. Wagner v. CitiMortgage, Inc., 995 F.Supp.2d 621 (N.D.Tex. 2014).

2–3 The State and Federal Court Systems

Each state has its own court system. Additionally, there is a system of federal courts. The right-hand side of Exhibit 2–2 illustrates the basic organizational framework char- acteristic of the court systems in many states. The exhibit also shows how the federal court system is structured. We turn now to an examination of these court systems, beginning with the state courts.

2–3a The State Court Systems No two state court systems are exactly the same. Typi- cally, though, a state court system includes several lev- els, or tiers, of courts, as shown in Exhibit 2–2. State courts may include (1) trial courts of limited jurisdic- tion, (2) trial courts of general jurisdiction, (3) appellate courts (intermediate appellate courts), and (4) the state’s highest court (often called the state supreme court).

Generally, any person who is a party to a lawsuit has the opportunity to plead the case before a trial court and then, if he or she loses, before at least one level of appellate court. If the case involves a federal statute or a federal constitutional issue, the decision of the state supreme court may be further appealed to the United States Supreme Court. Note that lawsuits can take years to resolve through the courts, especially since many states have experienced large cuts in court funding in recent years. In fact, the United States Supreme Court decided a

Supreme Court of the United States

Specialized U.S. Courts

• Bankruptcy Courts • Court of Federal Claims

• Court of International Trade

• Tax Court• Tax Court• T

Highest State Courts

State Courts of Appeals

State Trial CourtsState Trial CourtsState T of General Jurisdiction

Local Trial Courts ofLocal Trial Courts ofLocal T Limited Jurisdiction

State Administrative Agencies

U.S. Courts of Appeals

Federal Administrative

Agencies

U.S. District Courts

EXHIBIT 2–2 The State and Federal Court Systems

36 UNIT ONE The Foundations

case in 2015 involving a trademark dispute that had been in the courts for more than sixteen years.13

The states use various methods to select judges for their courts. Usually, voters elect judges, but in some states judges are appointed. For instance, in Iowa, the governor appoints judges, and then the general popula- tion decides whether to confirm their appointment in the next general election. The states usually specify the number of years that judges will serve.

Trial Courts Trial courts are exactly what their name implies—courts in which trials are held and testimony is taken. State trial courts have either general or limited jurisdiction, as defined earlier.

General Jurisdiction. Trial courts that have general juris- diction as to subject matter may be called county, district, superior, or circuit courts.14 State trial courts of general jurisdiction have jurisdiction over a wide variety of sub- jects, including both civil disputes and criminal prosecu- tions. In some states, trial courts of general jurisdiction may hear appeals from courts of limited jurisdiction.

Limited Jurisdiction. Courts of limited jurisdiction as to subject matter are generally inferior trial courts or minor judiciary courts. Limited jurisdiction courts might include local municipal courts (which could include sepa- rate tra�c courts and drug courts) and domestic relations courts (which handle divorce and child-custody disputes).

Small claims courts are inferior trial courts that hear only civil cases involving claims of less than a certain amount, such as $5,000 (the amount varies from state to state). Procedures in small claims courts are generally informal, and lawyers are not required (in a few states, lawyers are not even allowed). Decisions of small claims

13. B&B Hardware, Inc. v. Hargis Industries, Inc., ___ U.S. ___, 135 S.Ct. 1293, 191 L.Ed.2d 222 (2015).

14. The name in Ohio and Pennsylvania is Court of Common Pleas. The name in New York is Supreme Court, Trial Division.

courts and municipal courts may sometimes be appealed to a state trial court of general jurisdiction.

A few states have also established Islamic law courts, which are courts of limited jurisdiction that serve the American Muslim community. These courts decide cases with reference to the sharia, a system of law used in most Islamic countries that is derived from the Qur’an and the sayings and doings of Muhammad and his followers.

Appellate, or Reviewing, Courts Every state has at least one court of appeals (appellate court, or reviewing court), which may be an intermediate appellate court or the state’s highest court. About three-fourths of the states have intermediate appellate courts.

Generally, courts of appeals do not conduct new trials, in which evidence is submitted to the court and witnesses are examined. Rather, an appellate court panel of three or more judges reviews the record of the case on appeal, which includes a transcript of the trial proceedings. The appellate court hears arguments from attorneys and determines whether the trial court committed an error.

Reviewing courts focus on questions of law, not ques- tions of fact. A question of fact deals with what really question of fact deals with what really question of fact happened in regard to the dispute being tried—such as whether a party actually burned a flag. A question of law concerns the application or interpretation of the law— such as whether flag-burning is a form of speech pro- tected by the First Amendment to the U.S. Constitution. Only a judge, not a jury, can rule on questions of law.

Appellate courts normally defer (give significant weight) to the trial court’s findings on questions of fact because the trial court judge and jury were in a better position to evalu- ate testimony. The trial court judge and jury can directly observe witnesses’ gestures, demeanor, and other nonver- bal behavior during the trial. An appellate court cannot.

In the following case, neither the administrative agency that initially ruled on the dispute nor the trial court to which the agency’s decision was appealed made a finding on a crucial question of fact. Faced with that circumstance, what should a state appellate court do?

Background and Facts Jennifer Johnson was working as a finance analyst for Oxy USA, Inc., when Oxy changed the job’s requirements. To meet the new standards, Johnson took courses to become a certified public accountant. Oxy’s “Educational Assistance Policy” was to reimburse employees for the

Johnson v. Oxy USA, Inc. Court of Appeals of Texas, Houston—14th District, __ S.W.3d __ , 2016 WL 93559 (2016).

Case 2.3

CHAPTER 2 Courts and Alternative Dispute Resolution 37

cost of such courses. Johnson further agreed that Oxy could withhold the reimbursed amount from her final paycheck if she quit Oxy within a year. When she resigned less than a year later, Oxy with- held that amount from her last check. Johnson filed a claim for the amount with the Texas Workforce Commission (TWC). The TWC ruled that she was not entitled to the unpaid wages. She filed a suit in a Texas state court against Oxy, alleging breach of contract. The court affirmed the TWC’s ruling. Johnson appealed.

In the Language of the Court Ken WISE, Justice WISE, Justice WISE

* * * * * * * The trial court * * * held that Johnson’s [claim for breach of contract was] barred by res judicata

[“a matter judged”]. In a court of law, a claimant typically cannot pursue one remedy to an unfavorable outcome and then seek the same remedy in another proceeding before the same or a different tribunal. Res judicata bars the relitigation of claims that have been finally adjudicated or that could have been litigated Res judicata bars the relitigation of claims that have been finally adjudicated or that could have been litigated Res judicata in the prior action. [Emphasis added.]

Johnson argues that res judicata does not apply here because the TWC did not render a final judgres judicata does not apply here because the TWC did not render a final judgres judicata – ment on the merits of her claim that Oxy misinterpreted its Educational Assistance Policy. Specifically, Johnson claims she was “denied the right of full adjudication of her claim because the TWC refused to consider her arguments at the administrative level as beyond its jurisdiction.” To support this contention, Johnson points to the following excerpt from the * * * decision:

* * * The TWC does not interpret contracts between employers and employee but only enforces the Texas Payday Law [the Texas state law that governs the timing of employees’ paychecks]. * * * The question of whether the employer properly interpreted their policy on reimbursed educa- tional expenses versus a business expense is a question for a different forum.

According to Johnson, this language shows that the TWC refused to consider the merits of the issue she raised as “beyond its reach.” In contrast, the defendants contend that Johnson’s claims are barred by res judicata because they are based on claims previously decided by the TWC.res judicata because they are based on claims previously decided by the TWC.res judicata

* * * * In Johnson’s case, however, the TWC did not decide the key question of fact in dispute—whether Oxy

violated its own Educational Assistance Policy when it withheld Johnson’s final wages as reimbursement for the CPA courses. In fact, the TWC explicitly refused to do so, stating that the agency “does not interpret contracts between employers and employee.” * * * Because this question goes to the heart of Johnson’s breach of contract * * * claim, we hold that res judicata does not bar [that] claim. [Emphasis added.]res judicata does not bar [that] claim. [Emphasis added.]res judicata

The defendants argue that because Johnson seeks to recover the same wages in this suit as she did in her claim with the TWC, res judicata must bar her common law cause of action. However, * * * res judicata must bar her common law cause of action. However, * * * res judicata res judicata would only bar a claim if TWC’s order is considered final. * * * Here, the order in Johnson’s case judicata would only bar a claim if TWC’s order is considered final. * * * Here, the order in Johnson’s case judicata made no such findings with regard to the Educational Assistance Policy. The order expressly declined to address that issue. Therefore, * * * res judicata will not bar Johnson’s breach of contract * * * claim.res judicata will not bar Johnson’s breach of contract * * * claim.res judicata

Decision and Remedy A state intermediate appellate court reversed the lower court’s decision. “The TWC did not decide the key question of fact in dispute—whether Oxy violated its own Educational Assis- tance Policy when it withheld Johnson’s final wages. In fact, the TWC explicitly refused to do so, stating that the agency ‘does not interpret contracts between employers and employee.’“ The appellate court remanded the case for a trial on the merits.

Critical Thinking • Legal Environment Who can decide questions of fact? Who can rule on questions of law? Why? • Global In some cases, a court may be asked to determine and interpret the law of a foreign country. Some

states consider the issue of what the law of a foreign country requires to be a question of fact. Federal rules of procedure provide that this issue is a question of law. Which position seems more appropriate? Why?

Case 2.3 Continued

38 UNIT ONE The Foundations

Should You Consent to Have Your Business Case Decided by a U.S. Magistrate Judge?

You have a strong case in a contract dispute with one of your business’s suppliers. The sup- plier is located in another state. Your attorney did everything necessary to obtain your “day in court.” The court in question is a federal district court. But you have just found out that your case may not be heard for several years— or even longer. Your attorney tells you that the case can be heard in just a few months if you consent to place it in the hands of a U.S. magistrate judge.a

Should you consent?

A Short History of U.S. Magistrate Judges

Congress authorized the creation of a new federal judicial officer, the U.S. magistrate, in 1968 to help reduce delays in the U.S. district courts.b These junior federal officers were to conduct a wide range of judicial proceedings as set out by statute and as assigned by the district judges under whom they served. In 1979, Congress gave U.S. magistrates consent jurisdiction, which authorized them to conduct all civil trials as long as the parties consent.c Currently, magistrate judges dispose of over one million civil and criminal district court matters, which include motions and hearings.

The Selection and Quality of Magistrate Judges

As mentioned, federal district judges are nominated by the president, confirmed by the Senate, and appointed for life. In contrast, U.S. magistrate judges are selected by federal district court judges based on the recommenda-

tions of a merit screening committee. They serve an eight-year term (which can be renewed).

By statute, magistrate judges must be chosen through a merit selection process. Applicants are interviewed by a screening committee of lawyers and others from the dis- trict in which the position will be filled.d Politi- cal party affiliation plays no part in the process.

A variety of experienced attorneys, administrative law judges, state court judges, and others apply for magistrate judge positions. A typical opening receives about a hundred applicants. The merit selection panel selects the five most qualified, who are then voted on by federal district court judges.

Because the selection process for a magistrate judge is not the same as for a district judge, some critics have expressed concerns about the quality of magistrate judges. Some groups, such as People for the American Way, are not in favor of allowing magistrate judges the power to decide cases. These critics believe that because of their limited terms, they are not completely immune from outside pressure.

Business Questions 1. If you were facing an especially complex legal dispute—

one involving many facets and several different types of law—would you consent to allowing a U.S. magistrate judge to decide the case? Why or why not?

2. If you had to decide whether to allow a U.S. magistrate judge to hear your case, what information might you ask your attorney to provide concerning that individual?

d. 28 U.S.C. Section 631(b)(5).

MANAGERIAL STRATEGY

a. 28 U.S.C. Sec 636(c); Roell v, Withrow, 538 U.S. 580, 123 S.Ct. 1698, 155 L.Ed.2d 775 (2003).

b. Federal Magistrates Act, 82 Stat. 1107, October 17, 1968. c. U.S.C. Section 636(c)(1).

Highest State Courts The highest appellate court in a state is usually called the supreme court but may be des- ignated by some other name. For instance, in both New York and Maryland, the highest state court is called the Court of Appeals. The highest state court in Maine and Massachusetts is the Supreme Judicial Court. In West Vir- ginia, it is the Supreme Court of Appeals.

The decisions of each state’s highest court on all questions of state law are final. Only when issues of federal law are involved can the United States Supreme Court overrule a decision made by a state’s highCourt overrule a decision made by a state’s highCourt overrule a decision made by a state’s high- est court. ■ EXAMPLE 2.7 A city enacts an ordinance that prohibits citizens from engaging in door-to-door

advocacy without first registering with the mayor’s office and receiving a permit. A religious group then sues the city, arguing that the law violates the freedoms of speech and religion guaranteed by the First Amendment. If the state supreme court upholds the law, the group could appeal the decision to the United States Supreme Court, because a constitutional (federal) issue is involved. ■

2–3b The Federal Court System The federal court system is basically a three-tiered model consisting of (1) U.S. district courts (trial courts of general jurisdiction) and various courts of limited

CHAPTER 2 Courts and Alternative Dispute Resolution 39

jurisdiction, (2) U.S. courts of appeals (intermediate courts of appeals), and (3) the United States Supreme Court.

Unlike state court judges, who are usually elected, fed- eral court judges—including the justices of the Supreme Court—are appointed by the president of the United States, subject to confirmation by the U.S. Senate. Fed- eral judges receive lifetime appointments under Article III of the U.S. Constitution, which states that federal judges “hold their offices during good Behaviour.” In the entire history of the United States, only seven federal judges have been removed from office through impeach- ment proceedings.

Certain federal court officers are not chosen in the way just described. This chapter’s Managerial Strategy feature describes how U.S. magistrate judges are selected.

U.S. District Courts At the federal level, the equiva- lent of a state trial court of general jurisdiction is the dis- trict court. U.S. district courts have original jurisdiction in matters involving a federal question and concurrent

jurisdiction with state courts when diversity jurisdiction exists. Federal cases typically originate in district courts. There are other federal courts with original, but special (or limited), jurisdiction, such as the federal bankruptcy courts and tax courts.

Every state has at least one federal district court. The number of judicial districts can vary over time, primarily owing to population changes and corresponding changes in caseloads. Today, there are ninety-four federal judicial districts. Exhibit 2–3 shows the boundaries of both the U.S. district courts and the U.S. courts of appeals.

U.S. Courts of Appeals In the federal court system, there are thirteen U.S. courts of appeals—referred to as U.S. circuit courts of appeals. Twelve of these courts (including the Court of Appeals for the D.C. Circuit) hear appeals from the federal district courts located within their respective judicial circuits (shown in Exhibit 2–3).15

15. Historically, judges were required to “ride the circuit” and hear appeals in different courts around the country, which is how the name “circuit court” came about.

Discussion: Respondent Superior

Discussion: Respondent Superior

Discussion: Respondent Superior

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